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Executives

Eric C. Wong – Vice President of Investor Relations

Leslie A. Blodgett – Chief Executive Officer

Myles B. McCormick – Chief Financial Officer & Chief Operating Officer

Analysts

William Chappell – SunTrust Robinson Humphrey

Neely Tamminga – Piper Jaffray

Jim Duffy – Thomas Weisel

Mark Astrachan – Stifel Nicolaus

Joseph Altobello – Oppenheimer & Company

Andrew Sawyer – Goldman Sachs

Joseph Spak – RBC Capital Market

Ryan [Sundy] – William Blair & Company

Bare Escentuals, Inc. (BARE) Q3 2009 Earnings Call October 29, 2009 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. And welcome to the Bare Escentuals Third Quarter Fiscal 2009 Results Conference Call. During today's presentation all parties will be in a listen-only mode. (Operator Instructions) This conference is being recorded today, Thursday, October 29, 2009.

I would now like to turn the conference over to Mr. Eric Wong, Vice President of Investor Relations. Please go ahead sir.

Eric C. Wong

Thank you. Good afternoon. Welcome to Bare Escentuals third quarter fiscal 2009 conference call. On the call today are Leslie Blodgett, Chief Executive Officer and Myles McCormick, Chief Operating Officer and Chief Financial Officer.

By now, everyone should have had access to the third quarter earnings release, which went out today at 4:00 pm Eastern Time, 1:00 pm Pacific Time. If you’ve not received your release, it is available on the Investor Relations portion of Bare Escentuals website at www.bareescentuals.com by clicking on the About Bare Escentuals tab. This call is being webcast and a replay will be available on the Company’s website for one month.

Before we begin, I’d like to remind everyone that the prepared remarks contain forward-looking statements. Including statements regarding potential future financial results and condition, capital expenditures, prospects, opportunities and other future events and management may make additional forward-looking statements in response to your questions.

These statements involve risks and uncertainties and do not guarantee future performance. Therefore, undue reliance should not be placed on them. We refer all of you to the Risk Factors contained in Bare Escentuals most recent Form 10-K for the period ended December 28, 2008 and any subsequent Form 10-Q filed with the SEC for more detailed discussions of those factors that could cause actual results and the timing of event to differ materially from those projected or implied by any forward-looking statements.

We also refer you to the language regarding forward-looking statements contained in the earnings release that went out earlier today and incorporate that language here, as well. Bare Escentuals assumes no obligation to revise or update any forward-looking statements and may be made in today’s release or call.

And, with that, I would like to turn the call over to Leslie Blodgett.

Leslie A. Blodgett

Thanks Eric. Good afternoon and thanks to everyone for joining us today, as we discussed our 2009 third quarter and year-to-date financial results. While the economic environment remains challenging, we are proud of the progress for making against the strategic initiatives that we set up for ourselves at the beginning of the year.

In the third quarter, we began to see tangible results of our initiatives in product extension, marketing outreach and geographic expansion. From a financial perspective, our net sales for the quarter increased 4% year-over-year to a $135.7 million from $130.2 million in the prior year period. Net income for the third quarter was $22.6 million or $0.24 per diluted share compared to $22.9 million or $0.25 per diluted share in the prior year period.

While we still face competitive and macroeconomic risks, our domestic retail sell-through improved in the quarter, and was ahead of the trends in the prestigious cosmetic industry, which declined 5%. We view our results as a testament to the resiliency of our brand, the royalty of our BE users, and ultimately, the performance of our products. These characteristics are creating opportunities to Bare Escentuals to increase our market share to the careful execution of our strategic initiatives.

Let me take a moment and recap the progress we've made year-to-date against those initiatives. First, with respect to our existing customers, we set out to build upon our loyal and passionate customer base through product innovation in our core face category, as well as ancillary categories, such as eye, lips, and skin care. Delivering against this promise, we've had more strategic product launches across categories in 2009 than any other year. And I'm thrilled with the early responses that we are receiving from our customer base and our retail partner.

Our Matte foundation was launched exclusively in Sephora during August, with national retail rollout occurring in September. Matte is an exiting innovation in our core bareMinerals face category but offers our existing bareMinerals users a new finish that they can use either in place of, or alongside our original foundation. At the same time, with Matte, we are also targeting a new set of customers, from whom a Matte finish is a must.

Matte has been supported with a cohesive launch campaign that integrates online marketing efforts, including our website, lovematte.com, along with a unique integrated print and outdoor campaign. All of this is supported by a coordinated sampling effort whereby we are distributing over $0.5 million samples to potential customers through our stores and retail partners.

While it's early, we are pleased with the awareness that we've been able to achieve though the campaign while staying true to our non-traditional cost effective marketing approach and encouraged by the feedback from our retail partners and consumers. We are also developing exiting products in our complimentary categories, eye, lip and skin care.

Building upon the Mascara expertise, we developed with our Buxom launch earlier this year. We introduced our Flawless Definition Mascara to all retail channels during the third quarter. The defining Mascara that accentuates lifts and nourishes lashes without clumping. Flawless Definition Mascara represents another step forward in building a meaningful eye business under the bareMinerals brand.

To-date, we have distributed over 200,000 deluxe samples to customers to drive awareness and trial of the product, and are excited about the early sales reads, which include the number one prestige ranking at Ulta since it launched. Another way, we've approached expanding complementary product categories has been by building upon the success of our Buxom brand. You'll recall that Buxom began as a lip plumper under the Bare Escentuals brand. It quickly developed a personality and a following of its own, one that aligned particularly well with Sephora's target customer.

As such, in January of this year we launched Buxom Lash in Sephora to rave reviews. In August we expanded the Buxom line with Sephora to include three shades of lash liner, six shades of eyeliner, and six shades of lipsticks. Again we supported the launch with a unique and fun launch website buxomconcessions.com, which played upon the personality of the brand. As a result of those initiatives and strong customer reviews, our Buxom lipsticks represented the number one and number two top-selling shades at Sephora until they quickly sold out.

We are excited by the success of these launches and the long-term opportunity to growth our lip and eye businesses under the Buxom and core bareMinerals lines. Second, turning to our new customer acquisition strategy. As I mentioned, we continued to focus on non-traditional marketing efforts aimed at driving increased awareness of our brand and product offering, including in-stores events, sampling programs, grassroots campaigns and creative partner collaborations unique to the category.

In fact, while we've seen many of our competitors pull back on their customer outreach we have expanded our investment in this area in 2009. We believe that we are beginning to see the early returns on this investment and that over the long-term these initiatives will help to further distinguish the high-touch, personal, and authentic approach for which Bare Escentuals is known.

At the core of our outreach strategy is educating potential customers about the benefits of bareMinerals make up, as well as the application and use of Bare Escentuals products. During the third quarter, we conducted 36 events across our Boutiques, ULTA, Sephora and Nordstrom. I was fortunate to be able to participate in the number of these events and hosted a sold-out master class in San Francisco, where women learned new makeup tips and techniques, as well as previewed and purchased some of our new products.

It's extremely gratifying to me able to meet our customers face-to-face and shares and their excitement about our products. Combined, these marketing events spanned 18 states, and we estimate that over 3000 make-unders were performed. As I mentioned, our innovative marketing approach supporting the Matte launch was met with success. We had a very fun and eye-catching campaign that integrated both traditional and non-traditional marketing efforts.

Traditional forms of advertising such as outdoor billboards, street pillars, and magazine and newspaper ads, highlighting the product's key attributes were complemented by our Take Matte Home sampling campaign and our Matte is Your Friend With Benefit initiative driven by street teams in San Francisco and New York handing out recyclable tote bags and samples.

Finally, we also coordinated an online push as well as a co-op advertising program with our specialty retailers, including ULTA and Sephora. Combined these initiatives educated consumers on Matte and increased the visibility of Matte's launch at key accounts. With respect to our ongoing marketing efforts, we continue to drive broadband awareness, as well as educate and acquire consumers through both the infomercial and QVC, and thus remain firmly committed to those channels.

At the same time, via the Matte campaign, we've demonstrated our ability to build excitement and customer trial across brick-and-mortar channels, while still keeping costs to a minimum. Now, we are beginning to blend the two approaches based on the best aspects of both strategies.

We are returning to our distribution strategy, as we seek to build global awareness of the Bare Escentuals brand, we are careful to employ a measured approach to growth and evaluate our distribution opportunities on a market-by-market basis. Here in the U.S. we continue to increase the accessibility of Bare Escentuals products through our wholesale/retail partners, including specialty retailers and department stores, as well as through our own Bare Escentuals boutiques.

As a part of this effort, we've opened 27 boutique and three outlets in the U.S. year-to-date bringing our total to 124 locations as of quarter-end. In the fourth quarter, we expect to open two boutiques for a total of 29 new boutiques and three outlets in 2009. I am particularly excited to announce the addition of our Time Square boutique, slated to open in November, this high profile location is a great addition to the New York metro area and represents a compelling opportunity to expand our brand.

On the internation front we continued to gain traction. In the third quarter international revenues increased 19% year-over-year on a dollar basis. $20.6 million and on the constant currency basis increased 22%. International growth was led by continued positive momentum in Europe in addition to modest growth in Asia. With respect to Europe we continued to gain ground in both the U.K. and France.

In the U.K. Bare Escentuals remains one of the top selling beauty brands in the department stores in which we operate. As such we are expanding our presence in the market, as we opened 30 department store doors during the quarter for a total of 60. We are also particularly excited to announce that in September, we opened our first company owned boutique outside the U.S., in the center of London.

Located Covent Garden, which is widely recognized as one of London's premier shopping and entertainment districts. Our Bare Escentuals boutique represents both an outstanding brand-building vehicle, as well as the terrific opportunity to connect directly with our U.K. customer.

Speaking to the rest of Europe our partnership with Sephora continues to be strong, with bareMinerals ranking as the number one non-private label foundation brand in Sephora's brand. Finally, while broader tends in Asia continue to be challenging due to the uncertain economic environment. Our Japanese business posted growth in the quarter both versus the prior year and sequentially versus the second quarter. Similarly regular order patterns from our international distributors resumed as expected following the second quarter destocking.

Lastly turning to our fourth and final major initiative, I wanted to update you on our organizational structure. Over the past 12-months we've made significant progress and simplifying our organizational structure and the result is a much more cohesive, nimble and results driven organization. The entire team at Bare Escentuals has been hard at work and we couldn't be more pleased with our efforts. In conclusion we are encouraged by our year-to-date financial performance, particularly in light of the broader economic headwinds.

By focusing on our strategic initiatives to build our customer base, improve our new customer acquisition, expand our points of distribution, and enhance our organizational structure, we're delivering against our operational and financial objectives.

With that I would like to turn the call over to Myles to discuss our third quarter and year-to-date financial results in more detail. Myles?

Myles B. McCormick

Thanks, Leslie. We are pleased with our third quarter results, which mark a return to year-over-year sales growth and continuation of our year-to-date improvement in gross and operating margins.

Let me begin with a brief discussion on sales results by segment. Net sales for our North American retail segment were $88.3 million, compared to $80.5 million in the third quarter of last year, representing a 10% increase. The increase was primarily driven by door count expansion, including the opening of 40 new Bare Escentuals boutiques, versus the third quarter last year.

As expected inventory purchases from our key retail partners improved both due to the completion of their inventory destocking, as well as sell-in related to new product launches, particularly Matte foundation. As Leslie mentioned, although the early consumer response to this launch is positive, our partners continue to maintain a conservative approach to overall inventory management. Thus going forward, we would expect to see sell-in approximate sell-though.

Net sales from our North American direct-to-consumer segment was $26.9 million compared to $32.4 million in the third quarter of last year, representing a decrease of 17%, which represents a sequential improvement in the rate of sales decline from the prior quarter. The year-over-year decrease in sales is primarily related to lower sales from our infomercial, while our domestic QVC and web businesses were roughly flat.

Net sales from our international segment were $20.6 million compared to $70.2 million in the third quarter of last year representing an increase of 19%. As Leslie mentioned, this increase was primarily due to door count expansion in Europe including the growth of our department store of business in the U.K. While Japan is still facing strong economic headwinds net sales from our Asia business increased versus the prior year. Lastly, as previously discussed the third quarter market return to normalized buying patterns among our international third-party distributors.

Turning to gross margins, gross margins for the third quarter expanded 150 basis points to 74.3% from 73.8% in the prior year period. This increase was consistent with the trends we've seen on the year-to-date basis towards higher margin channels, such as boutiques as well as a greater percentage of our sales being generated from our higher margin non-kit products.

SG&A in the second quarter was $57 million, an increase of $5.7 million from the prior year. The increase was largely due to incremental occupancy and operating costs associated with the increase in the number of boutiques opened over the past 12-months, as well as higher international sales and infrastructure expense. This was partially offset by a reduction in infomercial operating costs, including reduced media spending versus the prior year.

Operating income for the third quarter was $38.1 million or 28.1% of sales, versus $39 million or 30% of sales in the prior year period. Net income for the third quarter was $22.6 million or $0.24 per diluted share, this compared to $22.9 million in net income or $0.25 per diluted share in the prior year period.

Now turning to the balance sheet. We ended the quarter with cash and cash equivalents of $99 million, more than three times our prior year balance. Despite continued door expansion in both our domestic and international market, we've reduced inventories by 23% from the prior year to $74 million.

Looking to year-end, we believe there is incremental opportunity to further reduce inventories, as well as, excuse me, as we sell through our holiday assortment. Accounts receivable for the quarter increased by $3.8 million from the prior year to $47.4 million, versus the second quarter, accounts receivable was up, reflecting increased wholesale orders. And note, we are very pleased with the aging and credit quality of our A/R portfolio.

Capital expenditures in the quarter were $7 million primarily to support boutique and department store build out, international expansion ongoing IT and corporate investment. On a year-to-date basis, we resulted 27 boutiques and expect to open two more in the fourth quarter.

For the full year, we continue to expect that our total capital expenditures, including boutique and department store build out costs as well as IT, international; distribution and corporate infrastructure will be roughly $29 million.

With that, I will turn the call back over to you, Leslie.

Leslie A. Blodgett

Thanks, Myles. By executing on the strategic initiatives we laid out at the beginning of the year. We've seen improving business trends and results year-to-date. I remain excited about the upcoming holiday season, particularly our beautiful assortment, and look forward to updating you on our progress.

With that, I’d like to open the call up for questions

Question-and-Answer Session

Operator

Thank you, ma'am. We will begin the question-and-answer session. (Operator Instructions) And our first question comes from the line of Bill Chappell with SunTrust. Please go ahead.

William Chappell – SunTrust Robinson Humphrey

Hi, good afternoon.

Leslie A. Blodgett

Hi.

William Chappell – SunTrust Robinson Humphrey

I guess, first, just looking on the gross margin side, I mean, it continues to move higher off of a pretty high base. Are these numbers sustainable? Can they go higher from here? How should we be looking at it from this third quarter number?

Myles B. McCormick

Yes. And again third quarter reflects sort of continuation of some of the trends that we've seen really over the past three quarters, that is shift in product mix, greater part of our product mix being sold in open stock versus kits as well as channel mix. Frankly, a greater portion of the sales mix contributed by our Direct to Consumer businesses and that is boutiques et cetera. Our expectation would be over the near-term that would very consistent. However looking at the product mix going over the longer-term, there are other implications as relates to strategies we may be employing with respect to rejuvenating some of the aspects for our kit business.

William Chappell – SunTrust Robinson Humphrey

And looking at the top line numbers for the quarter, certainly impressive both for U.S. and international but trying to understand how much of that is driven by just sell-in of new products and I know you don’t give quarterly guidance, I mean, should we still assume that this fourth quarter is the biggest in terms of sales and earnings in this year?

Myles B. McCormick

Certainly and then specifically for the quarter I know that's going to be a question many of you have related to the sell-in versus sell-through. As Lucy noted in her prepared remarks sell-through was positive in the quarter for our third quarter in a row here. So we are really proud of that. In regards to the difference between sell-in and sell-through, sell-in did exceed sell-through by few points in the quarter largely again related to the sell-in of both Matte as well as Buxom and some of other new launches.

William Chappell – SunTrust Robinson Humphrey

Okay and then just one last one. We keep asking this, but should I now look at this quarterly number on the direct-to-consumer as the base number or could I actually take a step down from here?

Myles B. McCormick

As the base number in terms of?

William Chappell – SunTrust Robinson Humphrey

Kind of look quarterly revenue around $20 million, $25 million.

Myles B. McCormick

Got it. Now, important what's happening in the quarter, Q3 is one of the quarters that does not have a TSV in it. So it is going to be the lowest of the quarters, you can go back and look at how the quarters trend sequentially. It's more inline with that. So you would expect to see sequential improvement in Q4 with the inclusion of TSV.

William Chappell – SunTrust Robinson Humphrey

Great. Thanks so much.

Operator

Thank you. And our next question comes from the line of Neely Tamminga with Piper Jaffray. Please go ahead.

Neely Tamminga – Piper Jaffray

Thanks. Just a couple of questions and good job, you guys.

Myles B. McCormick

Thanks, Neely.

Leslie A. Blodgett

Thanks.

Neely Tamminga – Piper Jaffray

So, kicking it off, I want to talk a little bit about product with Leslie and then Myles, we'll follow up on some numbers just specifically, but Leslie, Buxom I think has been bigger than what anybody may have thought it could be in terms of the initial concept of what it is now. Is What is been creative with Buxom kind of a unique in the whole history of the brand of Bare Escentuals? And I mean, can we actually maybe fast forward a little bit and talk, does its unique positioning put you in a place where you can actually put in travel retail and other areas in distribution and maybe you may not necessarily take the core Bare Escentuals brand. So if you could just talk a little bit about that and then also I’m really curious about the deluxe gift with purchase that's at Ulta right now. I think it’s the first time you have really done that in that channel? Just kind of what you're seeing and what that might portend for future?

Leslie A. Blodgett

When we launched the Buxom lip polish, we had a lot of fun with it and we realized that women were really attracted to the fun, the girl's names and there was a lot of excitement there. And that's when we knew that this was bigger than just a lip polish. This is the only other brand other than bareMinerals that we have. So we definitely have a different view of this and because we have never had a second brand before. We have ideas on how to build this brand. So we are looking at that for as a future business for us. So I'm very excited about it. So thanks for those ideas, we will definitely.

Neely Tamminga – Piper Jaffray

More to come, that's what you are trying to say on that.

Leslie A. Blodgett

Yeah.

Neely Tamminga – Piper Jaffray

Okay, okay.

Leslie A. Blodgett

And yes, this was the first time that we took part in gift with purchase at Ulta, and I think that they have very good ideas over there and we were very happy to do it. And it is definitely a good idea for us.

Neely Tamminga – Piper Jaffray

Okay, great. Thanks. And then, hey Myles, just a little bit on distribution and then just almost I missed it, did you guys that talk about what you want to do with the retail leadership to replace Mike Dadario, I might have missed it, I am sorry, because I had to go off the call for just briefly but if you could talk a little bit about that from an org structure perspective and when you want to with retail stores and then also Prescriptives, I mean obviously 700 counters coming up here in the States. Not that you want to be mass across all of the department stores but just wondering are you guys – is it just that opportunity changes maybe your perspective of how you might roll out within the department stores.

Myles B. McCormick

Great, thanks. In regards to the first question, we are continuing to look for leadership, with Michael’s replacement, if you well, for North America. So it's a great importance to us and we're aggressively pursuing that. But we're continuing to look. With regards to the department store opportunity and specifically taking into account what’s going on with Prescriptive there and the potential for a greater amount of XP for us, for the opportunity in total we’ve long believe there is a place for department stores with our broader distribution strategy. So irregardless, really, of what it happen with a lot of Prescriptive, we always have considered that to be an opportunity. I'm not sure whether or not this changes our mind to any degree, if now we believe it’s a bigger opportunity or not. Frankly, we were continuing to view department store opportunities, against other opportunities we have in the market predominantly efficient for making against boutiques. But nevertheless, this is a net positive, I think, at the end of the day and we'll continue to look at that and that's relates to our plans for 2010

Neely Tamminga – Piper Jaffray

Okay. Thanks and keep up with the good work.

Myles B. McCormick

Thanks.

Operator

Thank you. And our next question comes from line of Jim Duffy with Thomas Weisel Partners. Please go ahead.

Jim Duffy – Thomas Weisel Partners

Thanks and good afternoon.

Myles B. McCormick

Hi, Jim.

Jim Duffy – Thomas Weisel Partners

In the stores during the quarter, we saw a numerous instances of out of stock on the product. Do you have any statistics you can share on water service levels or fill rates or anything of that nature?

Myles B. McCormick

No, we don't and I would just say the in recurrence to out of stock performance, I think it's in that the way we do that. Frankly it is a sort of high-class problem and in short, it had to do with the launch is performing or better than we had expected that to perform in the quarter. I think at this point we've caught up to that and are in pretty good shape right now from inventory prospective.

Jim Duffy – Thomas Weisel Partners

Myles, is there anything you guys can do to work better with to retailers such that there's less instance of out of stock and you're more quickly replenishing so that everybody's capturing more business?

Myles B. McCormick

Yeah, I think we're all working towards that, frankly, and we’ve got very close relationships across with our specially accounts as well our department store accounts, really at all levels. And so the teams work very closely to manage that, that aspect of the business I think, frankly, when you're talking about new launches it's hard guess right here and…

Jim Duffy – Thomas Weisel Partners

Sure.

Myles B. McCormick

In this case that we were fortunate to have a very successful launch really across both Buxom and Matte that went beyond any of our expectations until we were – it's a nice problem to have, if you will. At this point we've caught up to it and the business is performing well.

Jim Duffy – Thomas Weisel Partners

Okay. And then as you look at the volume across the Matte line, do you have a sense for, I know its early days but give a sense for cannibalization of the core line, or any thoughts on what component of the Matte line might be incremental to the existing foundation business?

Leslie A. Blodgett

Well, it's a little too early to tell but we did expect cannibalization of the original, but we figure over the long-term, it's going to be pretty much with the industries between a luminous finish and a Matte, which is about 50% of the category. So in the future that’s what we're expecting but it's really at this point too early to tell.

Jim Duffy – Thomas Weisel Partners

Okay and then final question, Myles. The gross margin expectations in the fourth quarter you typically see a larger representation of kits. Does that suggest maybe some pressure on the directional change in gross margins that we've seen or do you expect you said earlier in the near term you expect that to remain directionally consistent?

Myles B. McCormick

Yeah, I think directionally, I think that is right there for the fourth quarter, you will see a bit of pressure from that. Offsetting, that pressure is going to be the benefit from the channel mix.

Jim Duffy – Thomas Weisel

Okay, great, thanks very much, and good luck in the holiday season.

Leslie A. Blodgett

Thank you

Operator

Thank you. And our next question comes form the line of Mark Astrachan with Stifel Nicolaus. Please go ahead.

Mark Astrachan – Stifel Nicolaus

Hi, good afternoon everyone.

Myles B. McCormick

Hi Mark.

Leslie A. Blodgett

Hi.

Mark Astrachan – Stifel Nicolaus

I guess just to start out, could you walk us through kind of the puts and takes of the decision of how to open a new boutique in the U.S. And then relatedly to that, as you opened your first boutique outside of the U.S. this quarter how did that thinking change, and how important could the international boutique be to long-term growth and how do you get a sense of when and how that potentially happened?

Myles B. McCormick

So in regards to, let me take international first. We're really early to that process and our approach with the boutique in U.K. was frankly we felt it was time given the time to brand has been in the marketplace. We experienced, we've developed by being with QVC, the distribution we've had with spas and salons, and the success we've seen in department stores. We felt it was an appropriate time to test a boutique. And to be frank, we had a great opportunity in Covent Garden that we wanted to take advantages of. So our approach, really, internationally, has been to find the pattern of success and execute against that from a distribution perspective. Whether boutiques or not become a large part of the international expansion or not is really going to depend on the market and the ultimate timing of how we address the various options in our channels of distribution on a global basis. Domestically, we have for greater information with respect to not only our direct-to-consumer business coming out of the infomercial and our web business to understand where we have pockets of demand that exist, at a level which we think are commensurate with a financial investment that a boutique would require. So we look at the strength of the mall, the strength of business in the market area and frankly the overall size of the market area itself and make a determination on that business.

Mark Astrachan – Stifel Nicolaus

Okay, great and just as a sort of related follow-up to that. If you look at the category growth, and I'm talking more U.S. if you break it out by channel department stores as boutiques. Are you seeing any differences in terms of that overall prestige category growth in terms of one performing better than the other? Is it both the same? Is there a foot-traffic-related issue or something else that you can point out there?

Myles B. McCormick

Within specific categories or within the distribution channels.

Mark Astrachan – Stifel Nicolaus

I guess, I'm trying to get a sense of where is thing seem to be better or worse or just relative performance if you look at your business in department stores versus boutiques. I guess you could even break it out from a other standpoint but just trying to get a sense in general of what you are seeing out there?

Myles B. McCormick

Yeah, I mean I think the reality is not would be too generalized to your approach it by blanket it even against the channels of distribution and what we're seeing is really it depends on what market we're talking about, some market boutiques are performing better, other markets department stores performing better and yet other markets our specialty accounts are performing better. Across our categories, if you will we are seeing very consistent performance, in the core product categories of the business of course with perspective categories like Buxom, our brand Buxom that has greater concentration in a particular channel, we are seeing the benefits of that as well.

Mark Astrachan – Stifel Nicolaus

Got it. Okay, thank you.

Operator

Thank you, and our next question comes from the line of Joe Altobello with Oppenheimer and Company. Please go ahead.

Joseph Altobello – Oppenheimer & Company

Hi guys, good afternoon. First question I guess was on their boutique topic for a second what is sort of the plan, I mean it seems like you've guys are building out in the 25, 30 boutiques a year is that sort of the long-term strategy or is there a number in your head that you want to get to at some point over the next three years or so?

Myles B. McCormick

Yeah, I would say that’s part of a mid-term approach to it. And as you said in the last call, and I know we've talked about previously. We are remaining very open minded to how the distribution evolves as the long-term. We're very fortunate to have a lot of different options as we enter a market and as we maximize potential within a market. So whether or not a market may consist more of department stores or specialty stores or a mix of department store, specialties and boutique, really remains the open question for us long-term. Over the near term here, there continues to be tremendous opportunities to develop our boutique business. And the rate of 20 to 25 a year we believe it's appropriate at this point. As I said before, that could evolve, differently over the long run.

Joseph Altobello – Oppenheimer & Company

Okay and then in terms of the SG&A it looks like this is the second consecutive quarter we saw at least a little bit of sequential leverage. Should we expect that trend to continue or given that you are going to expanding international a little bit, and doing some other, a sort of investment program here. Would you can expect that number to go higher from here or continue to get some leverage?

Myles B. McCormick

I think you are going to get some natural leverage share coming into Q4 as the revenue profile of the business list. And so we would expect to see some leverage on SG&A per share. Over the long run again and as we talked about last time roughly in the range we are running at and today on year-to-date basis we believe it's consistent. At least over the short-term, as we continue to develop out some of these younger businesses, like our boutique business, like our International business and some of the new brands.

Joseph Altobello – Oppenheimer & Company

When you say year-to-date, you mean, in terms of a percentage of sales?

Myles B. McCormick

Yes.

Joseph Altobello – Oppenheimer & Company

Got it, got it. And then lastly, just very quickly, the former premium wholesale channel of that sales number was up as well year-over-year, in addition to the boutique number?

Myles B. McCormick

Former, yes.

Joseph Altobello – Oppenheimer & Company

Got it. Okay, great. Thank you.

Operator

Thank you. And our next question will comes from the line of Andrew Sawyer with Goldman Sachs. Please go ahead.

Andrew Sawyer – Goldman Sachs

Yeah, sure guys it's really two quick ones. First one, just as you continue to build up cash, is there, is there any update at all on how you're thinking about uses of cash, or whether or not the Board is gotten to look, in light of what the improvement in the credit market, is the Board a little more comfortable with the idea of you guys potentially buying stock? Or are you still waiting to make the debt payment that's due I think sometime next year?

Myles B. McCormick

Yeah, we're still focusing on balancing those opportunities, and you're right, I think you're right now as the credit market has improved substantially. We're looking at mitigating some of that risk. That will have an impact on our approach there, but right now the approach remains the same, strengthening the balance sheet and maintaining flexibility.

Andrew Sawyer – Goldman Sachs

Are you guys actively looking at some refinancing?

Myles B. McCormick

We have definitely taking a look at it absolutely.

Andrew Sawyer – Goldman Sachs

Okay, and then just quickly on an international expansion. And I know you guys talked about pretty strong numbers coming out of Europe and Asia. Can you just give us a sense of how the development of those businesses benchmarks versus the development of your business in the United States. And what kind of sales per square foot are you getting in those outlets versus comparable period of your U.S. development? Or is the business ramping faster slower, and count where the sales per square foot or sales per door rank versus what we're seeing in the U.S.?

Myles B. McCormick

Yeah, it's a great question. What we're seeing in the market, it's different by market because each market is at a different stage of development in particular within Europe itself. The U.K. market is for many a reasons as a market that behaving very similar to the U.S. in terms of the performance, the adoption rate, how categories are selling, at least how they mirroring how they were adopted and sold in the earlier days here. And so we are seeing did that history repeat itself. The distribution landscape is very different in the U.K however, and our tools are bit different. For instance, we don’t have the infomercial if we do rely on different forms of marketing at this earlier on. The French market and some of the other European markets that we've recently entered are highly focused markets with respect to our complexion business. So again what we are seeing the brand develop a bit differently there. Were much more focused brand with a much more focused offering, so it’s a bit more difficult to you think about it along the same path as the U.S. or the U.K. business is. And right now in Asia we are still very it only in our strategy, we are still a media oriented brand we have an informercial, which has proven to very successful on QVC, we remain one of the most successful brands there. We will looking at taking that market development phase in the next stage and looking at retail distribution in later half of 2010 in Japan. So each market is a bit different. We've approached them bit different based on the tools available to us. But to try to answer your question what we are seeing in the U.K. does parallel what we are seeing in the U.S. what we saw in the U.S.

Andrew Sawyer – Goldman Sachs

Thanks very much.

Operator

Thank you. [Operator Instructions] your next question comes from line of Jason Gere with RBC Market. Go ahead.

Joseph Spak – RBC Capital Markets

Hi, good afternoon this is actually Joe Spak for Jason, just a couple of quick one. This is really clarification. I believe you are talking about North America retail, you said sell in looking at the fourth quarters sell in should approximately sell-through. But I believe you were talking about the Matte product. If you just confirm that and then maybe a little bit more broadly what you have see trends for that entire distribution channel?

Myles B. McCormick

Yeah, the implication would largely have been around Matte and that was one of our larger selling aspects for the quarter. So yes that is going to be in year-end sell-through. What was the second question you had there?

Joseph Spak – RBC Capital Markets

Just more generally what the sell-in/sell-through relationship looks like for the channel in the fourth quarter.

Myles B. McCormick

We would expect them to be close [proximity] each other.

Joseph Spak – RBC Capital Markets

Okay. As you look to the international boutiques strategy. Is it fair to assume that those boutiques would be a little bit more costly to open than the ones in North America given that you are probably going after high profile locations?. What have you seen as you scout locations?

Myles B. McCormick

Again it's a different by market it's hard to generalized of the key business internationally I am right now it’s very early. We are looking at additional location, but I would say we are going to take things very slowly internationally as we understand and learn the landscape of how these differences will get executed in that general distribution Canada certainly is much closure to the U.S. in regards to its landscape especially retail. The U.K. is very different. It has a lot of high street, very expensive. So you have to think about a bit differently.

Joseph Spak – RBC Capital Markets

Okay. And then I think you said to expect to a little bit more operating leverage or in the fourth quarter. How much of that is related to just opening few boutiques in the fourth quarter. I think you said only two.

Myles B. McCormick

It actually has very little bit do with opening boutiques in the quarter than it has just in general trends, the seasonality of the business lifting in the fourth quarter.

Joseph Spak – RBC Capital Markets

Okay, and then last one if you just comment a little bit about the infomercial outlook for the fourth quarter.

Myles B. McCormick

Sure and in commercial itself, we expected to perform as it has this year. It’s less of a seasonally driven business, so we would expect it to. I’m really holding the business. Make a couple of comments there that I think are worth noting on the infomercial business Leslie.

Leslie A. Blodgett

Yeah. What we are really excited about that we begun to align the brand, our new creative into the infomercial. And you’ll see us continued to do that, which is really new for us. The other things we are excited about is that we’re using a show to introduce new categories and I think it’s within the next week, you're going to see our flow of definition is mascara, as part of the show we never done that before, so I'm too exciting development in the infomercial.

Joseph Spak – RBC Capital Markets

Great, thanks, guys.

Operator

Thank you. And our next question comes from the line of Jon Andersen with William Blair. Please go ahead.

Unidentified Analyst

Good afternoon everyone. It's actually Ryan [Sundy] filling in for Jon

Myles B. McCormick

Okay. Hi Ryan

Unidentified Analyst

Congratulation on the quarter…

Myles B. McCormick

Thank you.

Unidentified Analyst

I guess just to start, I was wondering if you maybe comment on shelf space at retail? With some of the new products and maybe rationalization of some of the weaker brands out there, are you guys seeing gains in market shelf space?.

Leslie A. Blodgett

In regard to the Buxoms launch at Sephora, we were definitely getting more space there and with our fully developing that line. So yes, we’re definitely increasing space.

Unidentified Analyst

Okay. And with the Matte too, I assume?

Leslie A. Blodgett

Well, promotionally, we had some additional space in the launch, but we are including that on the Gondolas out there the market.

Unidentified Analyst

Gotcha. And I guess just a follow on the international opportunity I think I heard you to say earlier that you’re in 60 department stores in the U.K. now.

Myles B. McCormick

Correct.

Unidentified Analyst

Can you just kind of quantify how big of a market that is, in terms of the stores I guess.

Myles B. McCormick

Yes. I’m not quite sure how instructive it is, as we won't to be we won't perceive ourselves being in all of them. But, they have a marketplace between the U.K. and Ireland has roughly 350 department stores.

Unidentified Analyst

Okay. Great and then I was just wondering if you guys could provide any kind of color on the upcoming holiday season in terms of what you are going to do promotion or sampling?

Leslie A. Blodgett

Well, I would like to say that this is the first time we have really cohesive program that look similar in all channel. We have the great range of price points that we’ve never had before. We’re really calling out value. Some great ideas in our larger kits at retail. We have the nice Today’s Special Value coming up it QVC that has another great looking kit and assortment, so I feel really good about what's going on to the market for the consumer this year more than any other year in the past.

Unidentified Analyst

Great. That's very helpful. Thanks for taking my questions.

Leslie A. Blodgett

Thanks.

Operator

Thank you. That does concludes today's question and answer session at the time I’ll turn it back over to Ms. Blodgett for closing comments.

Leslie A. Blodgett

Well, thank you so much for tuning in. See you next time.

Operator

Thank you. Ladies and gentlemen, and that does concludes today's Bare Escentuals first quarter fiscal 2009 results conference call. Thank you for your participation. You may now disconnect.

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