CafePress's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.14.14 | About: CafePress (PRSS)

CafePress (NASDAQ:PRSS)

Q4 2013 Earnings Conference Call

February 13, 2013 5:00 p.m. ET

Executives

Alex Wellins – IR, Blueshirt Group

Bob Marino – CEO

Monica Johnson – CFO

Analysts

Youssef Squali – Cantor Fitzgerald

Brian Fitzgerald – Jefferies & Co.

Shawn Milne – Janney Capital Markets

Kevin Kopelman – Cowen & Co.

Ben Cohen – Raymond James

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the CafePress Fourth Quarter Earnings Conference Call.

[Operator Instructions]

I would now like to turn the conference over to Alex Wellins with Investor Relations. Please go ahead.

Alex Wellins

Thanks for joining us on the call today which is being broadcast live over the web and can be access from the IR section of the CafePress website at cafepressinc.com.

Joining me on today’s call are CEO, Bob Marino, and CFO, Monica Johnson.

Before we get started, I need to remind everyone that part of today's discussion will include forward-looking statements, including our plans with respect to commenting on any developments pertaining to our strategic alternatives, areas of additional opportunities and our growth plans in those areas, expectations with respect to revenue growth within our find-and-buy program and our plans to increase our SKUs therein, beliefs that we will ultimately benefit from mobile engagements, expectations of strong performance in 2014 and certain of our properties and categories, expected slower growth rate on CafePress.com and with new program and merchandise partners, expectations in the rate of revenue growth in 2014 compared to prior years, statements regarding our mission in 2014, the impact on our growth and expectations with respect to Ms. Johnson's role with us in 2014.

These statements are based on what we expect as of this conference call as well as current market and industry conditions, financial and otherwise. And we undertake no obligation to update these statements to reflect events, circumstances or changes that might arise after this call. These forward-looking statements are not guarantees of future performance or plans and therefore investors should not place undue reliance on them.

In addition, these forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially. These risks and uncertainties include but are not limited to risks regarding fluctuations in operating results, dependence on demand for and our sales of user-designed products, acquisition-related and litigation-related risks and associated expenses, the difficulty in estimating impacts and costs related thereto, our ability to maintain the proper functioning of the website, dependence on search and ability to drive traffic, the occurrence of an event which negatively impacts our brand reputation or recognition, impact of seasonality, customer acceptance of new technologies, products and services, ability to provide [ph] accurate results and recommendations across our long-tail marketplace catalogs, fluctuations in revenue contribution between our various e-commerce properties, risks and uncertainties related to our growth strategy, particularly the success and benefits of any future acquisitions and the integration thereof, and acquisition-related and litigation-related risks and associated expenses and difficulty in estimating impact and costs related thereto.

We refer you all to our SEC filings for more detailed discussions of the risks that could cause actual results to differ materially from those discussed in these forward-looking statements that could affect our future operating results and financial conditions.

I also want to inform listeners that we will make some reference to non-GAAP financial measures during today's call. You'll find supplemental data in our press release which reconciles our non-GAAP measures to our GAAP results. A press release can be found in our website at investor.cafepress.com.

With that, I'll turn the call over to Bob Marino. Bob?

Bob Marino

Thanks, Alex. Before I begin our Q4 results, I want to start out by addressing a few other important pieces of news from our press release.

First, we announced the transition of our CFO, Monica Johnson, who's sitting across the table from me. Monica has been a great partner and a tireless contributor in the myriad growth channels for CafePress for the past eight years. Monica has decided to begin a transition out of her role. As sorry as I am to see her go, she and I both feel it's an opportunity to shift the CFO responsibilities to our headquarters in Louisville. We are very fortunate to have a highly capable person onboard in Garett Jackson who is based with me in Louisville and is also on today's call. Garett's title is CIO, but his background includes significant CFO experience.

Monica will transition to a consulting and advisory role after we finish Q1 and will remain with us for the balance of 2014. I cannot thank her enough for her efforts and friendship.

Second, the Board and I have engaged Raymond James & Associates to evaluate strategic alternatives aimed at driving shareholder value. We began the engagement very recently, so we are only at the early stages of this process. As I hope you can appreciate, we do not plan to disclose or comment on developments regarding any strategic alternatives until further disclosure is deemed appropriate. And there could be no assurances that a transaction will be brought before the Board or concluded.

Turning to our results, CafePress customized e-commerce offering drove revenue of $90.5 million in Q4, within range of our prior guidance. We saw particular strength in our partner-related e-commerce business through CafePress services in the home and art categories and in custom products for groups. We shipped more than 2.5 million orders during the holiday quarter, all of them customized in the unique way that our customers ordered them.

While Q4 revenue was up year over year, it was impacted by an increase in promotional activity, resulting in a drop in AOS, particularly due to lower conversion rate. Revenue was $246 million for the year, up 13% over 2012. International revenue was up 19% for the quarter and 14% for the year.

Q4 adjusted EBITDA of $7.2 million and our full-year adjusted EBITDA of $9 million were below our forecast. The adjusted EBITDA shortfall was driven by the factors I just mentioned, as well as increased labor and shipping costs related to expedited product shipments during the shortened holiday season.

Our newly consolidated facilities performed well during the holiday rush and we are seeing measurable signs of increased efficiency and lower costs as we expected. We did have an isolated production issue resulting in some delayed orders and increased costs in an area of the plant that was untouched by the consolidation effort.

Turning to our business metrics, orders grew 10% year over year. Average order size was $35, down 7% year over year. AOS reflects the impact of the smaller order size of the EZ Prints DVD business as many of those orders were priced at $10 or less. As a reminder, we owned EZ Prints for two months during the year-ago period. Excluding that impact, AOS was $48, down $2 per order or 4% year over year. Again this is reflective of the lower-than-anticipated pricing that was required to help offset the lower conversion rates in Q4.

Acquisition cost per order continued to be favorably impacted by the consolidation of CafePress Services and its B2B model. As most CP Services orders are transacted through partners, they have substantially lower acquisition cost per order. With CP Services included, our Q4 cost per order was $6, flat from a year ago, and down $1 from Q3.

Without CP Services, Q4 acquisition cost per order was $9. This is up less than $1 year over year and down more than $1 from Q3. The year-over-year increase in acquisition cost per order was from the combination of investment in product lines such as art and groups which have strong repeat order trends, higher growth rates, and higher AOS, as well as higher marketing. The sequential decrease in acquisition cost per order resulted from a seasonal increase in conversion rates during the holidays which was not as great this season as in prior years due to the impact of the promotional activity.

I'll quickly review the marketplace, create-and-buy and shops [ph] areas of our business, and then turn to some of the macro issues shaping our outlook in 2014.

Marketplace revenue represented almost 60% of our total in the fourth quarter, reflecting our normal increasing find-and-buy products during the holiday season. In the home category we saw a strong demand for our huge selection of personalized products for every room in the house and for outdoor living. This category grew at over 20% during Q4.

Some of the products that were strong sellers in the home category during the holidays were blankets, shower curtains, bidet covers, rugs, pillows, curtains and beach towels. We see home as an area of major additional opportunity for CafePress and we are planning to grow the category.

Our sales in our marketplace also performed well. International was up 19% in Q4, reversing negative trends that we saw last year, particularly in the art products in the UK and Canada and Australia. CafePress capitalized on social media during Q4 as part of our effort to address customers wherever they are, while reducing the dependence on search. And because its Facebook followers surpassed the half-million threshold in Q4 and we deployed a major upgrade to our designer form, we are leveraging a new social technology platform that improves the features and functionality of our user community, allowing for more engagement, stronger feedback mechanisms and an improved user experience.

We also saw great results with our monthly socially-driven Share and Win contest. Social has now grown to the point where it has allowed us to decrease the dependency on third-party Flash sales sites and the associated volatility of those deals throughout the year.

Moving on to create-and-buy where individuals and groups use their own designs to create unique and customized products, this area represented almost 25% of revenue in Q4. Our group's platform, driven by Logo sportswear, had strong Q4 -- had strong Q4 with revenue up 17%. Logo supplies t-shirts, high-quality uniforms and corporate services for an ever-growing number of teams, [indiscernible] fundraisers, schools and special events.

Other new create-and-buy initiatives such as Keyphone.com [ph] in just its third quarter since launch, where anyone can raise funds for charities and events, has grown nicely.

Overall our create-and-buy offerings were down year over year for two main reasons. First, [indiscernible] on-demand moved away from Flash sales which overall is a healthy thing for the business, but did impact Q4 sales. Second, a new program with an existing large find-and-buy partner did not ramp up as quickly as expected during the holidays, but both we and the partner remain very excited about the potential of the program moving forward.

Our shops and partner business was approximately 20% of revenue in Q4. The very rapid growth of partner programs and corporate shops in the quarter was offset by the continued decline of small shops. Our strategy of providing scalable e-commerce shops for partners for which we acquire EZ Prints and evolve that technology into CafePress Services platform is working well. Our goal is to bring customization wherever e-commerce occurs for these larger properties that drive their own traffic.

CafePress Services, a subgroup of Shops, grew approximately 30%. During the period we expanded the number of partnerships, and many of those are listed in our earnings release today, including a new relationship with peers that launched just before the holidays.

2013 was a year of progress for CafePress and also one of great challenges. I'll wrap up my comments with a macro view of our business and the factors impacting guidance for 2014.

The major operations project for the year was the consolidation of many of our various manufacturing operations that we had acquired over the years in our flagship Louisville plant which resulted in more than doubling of our footprint in Louisville. The project went clearly was on budget. Louisville's location in the center of the country, located next to UPS's major hub, in an area with a strong pool of talent which is a competitive advantage for CafePress.

We have a multi-pronged strategy to diversify our business away from the reliance on search traffic, to solve for the market slowdown in small shops, and to adapt to move to -- to the move by consumers towards social and mobile. Mobile traffic continued to grow in Q4. This traffic presently converts lower than PC-based traffic, contributed to the promotional environment and led to a decrease in AOS. All in all, this impacted our Q4 revenue by roughly $3 million to $5 million and our Q4 EBITDA by roughly $2 million to $4 million.

We continue to see mobile as a significant opportunity in the long term. Mobile and for that matter social programs give us the opportunity to reach out to customers to push highly creative [ph] content based on individual user's need, and to do so more frequently. This is not yet a significant contributor but will continue to be one of our areas of focus and investment in the coming year.

Our execution and results have fallen short of our expectation. Many of the data points that I reviewed today show that the strategies we put in place are very promising, which is evidenced by the gain in many of our existing partner accounts, development of new partner relationships, and strong growth in categories such as art and groups. However, it is taking longer than expected to get to where we wanted to be.

Looking ahead to 2014, we expect to see continued strong performance from these properties and categories that drove our fourth quarter results. We have identified our fastest-growing products, art and groups, which have compelling margins, and we'll focus our marketing in those areas. It will take us some time to change the mix, however, we are on the right path.

The gains we have made, however, have and will continue to be offset by lower growth rates on CafePress.com and slower-than-expected program and merchandise ramps with new partners. We expect that the combination of these factors will result in slower revenue growth in 2014 than in prior years, resulting in the guidance we laid in our press release.

CafePress exits 2013 on a run rate of approximately $250 million in sales with a solid team, a new set of assets, and strong competitive position. We have exciting partnerships with main brands in entertainment and retailing that are quite promising. Customization is an exciting area within e-commerce and we have tremendous proprietary knowhow that is of strong value. Our ongoing mission in 2014 is to continue to promote strategies to effective monetize these assets, thereby setting the stage for more robust growth in the future.

I'll now ask Monica to review our results in more detail. Monica?

Monica Johnson

Thank you, Bob.

And while timing [ph] is always a challenge, I'm committed to transitioning my role to Garett as smoothly as possible. Garett and I have worked together closely since he was hired last year and this year will also allow me to hand over the day-to-day finance role to focus on strategic alternatives during this transitional period.

I'll now review our financial results and provide our outlook for the first quarter and fiscal 2014. All comparisons will be year over year unless otherwise noted.

Net revenues for the fourth quarter of $90.5 million represent 4% growth overall and was a result of 2% domestic growth and another -- along with another strong quarter of international growth at 19%. Along with international, we were pleased by the progress we've made in art, corporate shop and group sales.

For the full year 2013, net revenues were $245.9 million, representing a 13% growth rate resulting from 13% growth in our domestic business and 14% growth in international sales. Our Q4 adjusted EBITDA was $7.2 million compared to $9.4 million. As a percentage of revenue, EBITDA declined from 10.8% to 8%. This 2.8 percentage points decline in our EBITDA was the result of a 2.5 percentage point decrease in non-GAAP gross margin and a 0.9 percentage point increase in our non-GAAP operating expenses. And that was offset by a 0.6 percentage point increase in depreciation expense included in those categories.

More specifically, our gross margin on a non-GAAP basis was 37.5%, a 2.5 percentage point decline, which was the result of increased costs in the plant, lower pricing during the quarter, and a 0.3 increase in depreciation expense. The increase in depreciation expense primarily resulted from capital investments that were made as part of our facilities consolidation.

Secondly, the 0.9 percentage point increase in non-GAAP operating expenses included the following, 0.8 percentage point increase in sales and marketing. And this increase was driven by higher spend within our CP.com business to direct traffic during the holiday season. On a sequential basis, sales and marketing spend decreased 4.4 percentage points due to both scale and lower variable spend across the art and groups businesses.

Next, a 0.2 percentage point decrease in our technology and development expenses, and that was driven largely by scale. And finally, a 0.3 percentage point increase in our operating and depreciation expense from investments [indiscernible] consolidation that was late in 2012, as well as increased investment in our website.

Our general and administrative expenses as a percent of revenue were flat compared to Q4 2012. The increased spend from the full period of EZ Prints acquisition as well as some increased legal costs were offset by savings in facilities and further scale of our fixed operating cost.

Adjusted EBITDA for the full year was $9 million, compared to $17.6 million in Q4 2012. As a percentage of revenue, EBITDA declined from 8.1% to 3.7%. While we had factored in the 3 percentage point into our guidance for the year to account for the manufacturing consolidation, both the lower pricing and increased cost that Bob detailed for Q4 caused us to fall below our EBITDA guidance by just over 1 point.

The Q4 non-GAAP operating income was $4.8 million, and that’s compared to operating income of $7.6 million, a decrease of $2.8 million or 3.4 percentage points, driven by the factors I've just addressed.

Our Q4 non-GAAP net income was $3 million versus $5.4 million. Q4 non-GAAP net income per diluted share was $0.18 compared to $0.31 in the previous year. And for the full year, non-GAAP net loss of $0.2 million or $0.1 per diluted share, compared to non-GAAP net income of $8 million or $0.48 per diluted share in 2012. Our full-year non-GAAP effective tax rate in 2013 was 36.5%, and that compared to 28% in 2012. The increase was due to production tax credits which were available to us in 2012. And now our non-GAAP effective tax rate is now closer severance [ph] statutory rate in 2013.

On a GAAP basis, our income before taxes increased from $4.3 million in Q4 2012 o $4.8 million in Q4 2013. However, we've hosted a Q4 net GAAP loss of $4.7 million or $0.27 per fully diluted share, and that compared to GAAP net income of $3.1 million or $0.18 per fully diluted share in Q4 2012. The primary reason for decrease in GAAP net income was a non-cash charge of $8.9 million was we recorded in Q4 2013 as a valuation allowance for the full amount of our deferred tax asset.

As context, GAAP requires us to periodically evaluate the recoverability of our deferred tax assets. In doing this, we must consider our most recent performance and short-term outlook. Although we have generated taxable income for most of our history and believe that we'll be able to utilize our deferred tax assets in longer term, in light of our fiscal 2013 earnings and fiscal 2014 guidance, we concluded that this valuation allowance was required. This change had a negative $0.52 impact to both Q4 and 2013 GAAP this year [ph].

As I mentioned earlier, exclusive of the charge in other non-cash items, the company's effective tax rate was 36.5%. Other factors impacting our GAAP net income were as follows. Our GAAP operating expenses decreased 2.7 percentage points as our 0.9 percentage point increase in non-GAAP operating expenses were offset by declines in two main areas. First is 0.4 percentage decline in stock compensation. And second, a 3.2 percentage decline in acquisition-related costs as we recorded a $2 million benefit from changes in the expected fair value of our earner [ph] agreements.

For the full year, GAAP net loss was $13.5 million or $0.79 per diluted share, and that compared to a loss of $0.01 per diluted share in 2012. In full-year GAAP, loss before taxes were $7.2 million, compared to GAAP income taxes of $0.1 million in 2012. Our capital expenditures for Q4 2013 is $3.1 million compared to $3.5 million in Q4 2012. As a result, we had free cash which we define as adjusted EBITDA plus CapEx of $4.1 million, and that compared to $5.9 million.

Also during the quarter we had an operating cash inflow of $18.9 million, and that compared to operating cash inflow of $18.4 million in the same period last year. That's due to the seasonality of our working capital. For the full year our capital expenditures totaled $10.3 million or 4.2% of revenue, and that was split almost equally between our front-end investments in our site and back-end investments in our plant.

With regard to our plant consolidation efforts, as noted previously, the approximate impact to our financials was 2 percentage points to margin in the fourth quarter, and that was consistent with prior quarters. The consolidation of plant operations in Kentucky is largely complete now, although we did expect some restructuring activities to occur during the first quarter of 2014, and that falls within our original estimates.

Cash, cash equivalents and short-term investments totaled $36.8 million as of December 31, 2013. And lastly, our basic and fully diluted weighted average shares outstanding were 17.2 million in Q4 and 17.1 million for the year.

I'll now conclude with our outlook for the coming quarter and full year. Our guidance reflects the continuation of growth from our properties and product categories that drove our fourth quarter results, while taking into account the lower revenue expected from CafePress.com given the factors mentioned. We also expect to see an improvement in EBITDA margin over the course of 2014 through the consolidation of our manufacturing operations that we are seeing in the near term, but we expect they will be offset by pricing and conversion impacts that Bob outlined earlier and to continue during this year.

Specifically for Q1 2014, we expect net revenues in the range of $47.5 million to $51.5 million, Adjusted EBITDA ranging from a loss of $1.8 million to a loss of $0.2 million, non-GAAP net loss per diluted share of $0.16 to $0.11, GAAP net loss per diluted share of $0.41 to $0.34, and that includes restructuring charges from final consolidation activities of $0.7 million to $0.8 million, weighted average fully diluted shares estimated at 17.3 million, and we assume the tax rate of 36.5% for non-GAAP EPS.

This results in full-year guidance of the following. Net revenues ranging from $244 million to $256 million, adjusted EBITDA of $7 million to $11 million, non-GAAP net loss per diluted share of $0.13 to net income of $0.l, GAAP net loss per diluted share of $0.71 to $0.53, and weighted average fully diluted shares of approximately 17.6 million and basic shares of 17.4 million, and total capital expenditures in the range of $11 million to $40 million which is in the normal historical range of 5% of revenue. Finally, we assume the tax rate of 36.5% for non-GAAP EPS.

Our GAAP guidance for both Q1 2014 and full year 2014 includes the impact of maintaining a full deferred tax valuation allowance on our deferred tax assets throughout 2014. As a result, we will not record any GAAP income tax [indiscernible] unless we incur loss, and throughout 2014, we expect to incur a nominal amount of GAAP tax expense related to state and local taxes and the impact of deferred tax liabilities. We estimate the impact of this to be between negative $0.13 to $0.15 per share in Q1 and negative $0.20 to $0.27 for all of 2014.

With that said, we'll now turn it over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. And our first call comes from the line of Youssef Squali. Please go ahead.

Youssef Squali – Cantor Fitzgerald

Yes, hi. Youssef Squali from Cantor. Thanks. Just a couple of questions. Bob, maybe can you talk a little bit about the promotional activity that you mentioned as a driver for lower AOS? Where do you see it, in what categories? And also what's kind of baked into your 2014?

And then can you give some clarification on that delayed orders that you had throughout the quarter? I think you mentioned some issue at one of the plants. I was just wondering if you could maybe give some more clarity on that. Thanks.

Bob Marino

Okay, Youssef. First, where do we see the increase in promotional activity? That was almost entirely a comment relative to CafePress.com. And within that, we saw apparel maybe having more competitive and promotional issues around.

We also see that the conversion of our traffic was not as great as we thought in the previous period a year ago. And as we build our guidance for this year, we look not only to what we saw in the fourth quarter but whether or not we're seeing that promotional activity continue into the first quarter. And while a little less in a year-to-date basis in the first quarter, it's still present. And therefore what we're doing is taking this year to really look at the highest-growing parts of our business and driving marketing spend towards them. The higher-growing areas are also the most profitable areas, and so what we're trying to do this year is really shift the mix in that direction. It takes some time to do it, and that's the guidance that we put forward this year.

Your second question was around delayed orders in the plant. And I think there's probably two factors that we need to talk about. The minor one, of a slight tilt, imposed problem due to a coding error in a very section of our plant, had nothing to do with our consolidation. That did lock up some orders. But I think also the late-arriving volume in the shortened holiday season caused for us to have rush at the end. I think we're not the only ones that have reported that. And that, you know, gave us increased cost to expedite those orders at the end of the holiday period.

Youssef Squali – Cantor Fitzgerald

Okay. Thank you.

Operator

And our next question comes from the line of Brian Fitzgerald with Jefferies. Please go ahead.

Brian Fitzgerald – Jefferies & Co.

Thanks guys. I think you mentioned in the press release you saw some slower-than-expected program and merchandise ramps with partners. It sounded like from your comments it was more centered around find-and-buy or I guess Walmart versus create-and-buy around Amazon. From your perspective, why, you know, just because we want to do a condensed holiday cycle and so they kind of froze everything earlier, or what was kind of driving some of the slower-than-expected ramp there.

And then on the consolidation, I think you mentioned it's on track. I imagine that's from both a timing and cost perspective. And then will that -- that final piece that wasn't rolled in, I think you said that that would be completed fairly near term. Is that correct?

Bob Marino

Right. So help with the first question again. The partner ramp-up.

Brian Fitzgerald – Jefferies & Co.

Yeah.

Bob Marino

So CafePress comes from a very long-tail marketing driven place. And a lot of the major find-and-buy retail sites that we have partnered with don't have anything near this magnitude of long-tail. They want to get there. It requires some engineering effort to do so on both parties' part to first meet in the middle. So you see us traditionally start with really less than a thousand pieces of content with a partner and over time that grows to a much more substantial number.

And so I wish it didn't take that long and I know the partners didn't as well, but it does because of the difference in the go-to market strategies and engineering around that. They would go to create-and-buy, and that is specific to just one large existing find-and-buy partner who's launching this create-and-buy initiative with us. That was just delayed a bit, not on our end but in their roadmap, in the fourth quarter. And the like us also want to make sure that the navigation path, the user experience is perfected before it is driven to more and more users. So you're just seeing normal ramp-up there and normal improvement being made as they do that.

Help me with your second question.

Monica Johnson

Yeah, I think -- I'll grab the second question -- so I think you're asking about the consolidation process in the plant. We've talked about that throughout the year, we talked about -- a figure of about $6 million. And as we went through the year, I think we talked about each quarter it's roughly about 2-point gross margin impact throughout the year and similar to Q4. We've got a bit of a tail left to it with the major -- one of our major plant consolidated into Kentucky, and so have the remainder of that $6 million coming through as a restructuring charge. In Q1, as we got through the consolidation, we had some excess space. And then as we worked through it, some severance costs related to that. So the tail will finish in Q1 as a restructuring charge totaling up to roughly that $6 million.

Brian Fitzgerald – Jefferies & Co.

Great. Thanks, Bob; thanks, Monica.

Operator

And our next question comes from the line of Shawn Milne. Please go ahead.

Shawn Milne – Janney Capital Markets

Yes. Wanted to follow up on a couple of things. Can you break out, Monica, the added cost from the expedited shipments in the quarter?

And then just looking at 2014, I mean I think we all expected a pretty good rebound in gross margin because of the facilities consolidation, which doesn't seem to be baked in to your EBITDA guidance.

And then maybe, Bob, just I guess I'm a little confused on the difference between a conversion rate issue. Was there something on the website that wasn't working right or you just don't believe that traffic was turning into buyers? But then you specifically tried to quantify I think the mobile impact. So there was a lot going on in that commentary.

Monica Johnson

Right. So let me take the first two. So Q4 consolidated gross margin came in lower than we anticipated. And as I said, those impacts, base this in three areas. One is the consolidation cost, we had baked those in, the 2 points. The things we hadn't baked in fully were impacts -- the greater promotions. And if you look at it, a $2 impact there, that's several million dollars, enough to do the 3 points. The additional cost for what Bob discussed, so from the compression of the period and the merge issue caused additional stripping of labor costs, so that is over 1 percentage point. So that's how I look at Q4 breakdown. You know, one of the additional costs was planned, two were not fully in plan.

Secondly, you asked about next year, we've talked about picking up 3 points of margin going forward. We do have that baked into the plan. We are seeing improvements as we've consolidated facility costs -- facilities, and we're also seeing some improvements in shipping the labor right now. But we've baked in some additional pricing pressure into the year, and that has offset those -- that improvement. So there's a plus and a minus there.

The third question I think regard to mobile, and I'll let Bob answer that.

Bob Marino

I think first let's start with regard to conversion. Conversion this year for all three forms of traffic -- phone, tablet and PC-based -- was off than it was last year. I think we see some of that impact probably likely due to the shortened holiday season. But certainly also because of competition and promotional activity, general pricing out there.

Each fourth quarter we have had a habit of raising our prices and -- to take advantage of the increased demand for our consumer goods. And this fourth quarter was no different. In that regard we were able to raise our prices. But as we're doing so, we keep monitoring the level of conversion based on these new price points. And this year, unlike last year, we weren't able to take that price increase up as much as we would have liked to. And AUR is roughly a discrepancy between this year and last year of roughly $2. It goes to that $3 AOV [ph] issue for CafePress.com.

Now for mobile, I guess the comment there was simply that mobile continues to grow, and that's a good thing. But as it grows in the fourth quarter and in the near term, it does come in with lower conversion than PC-based traffic. So that wasn't helpful in the fourth quarter, but it is helpful as we go forward.

Mobile allows us to have more frequent sessions with the consumer over the course of the year because of two-way communication that it allows for the other channels. So that's what I was trying to intimate there with mobile.

Shawn Milne – Janney Capital Markets

So just as a follow-up, did you simply take your mobile traffic and say, if it converted as your PC traffic business, what the impact would have been? And have you implemented sort of either responsive design or something to make sure your tablet and phone-based app stores are working better like your desktop apps? Thanks.

Bob Marino

I definitely want to underscore that all devices conversion. This was not a mobile thing, right? But there was mobile traffic growth, which again we consider to be a good thing, okay?

To your point about responsive design, we implemented back in the third quarter, and we have seen improved conversion on mobile devices [indiscernible].

Monica Johnson

But I think to your point, Shawn, we did look at what was the increase in traffic as traffic, as increase with mobile, and the delta in conversion. But I think we are implementing new interfaces and tools with mobile. We did that in Q3. We've seen some increases in conversion and we're continuing to work on that going forward. But just like many long-tail companies that have a catalog like ours, it's a little more challenging. But the team is very focused on that at this time.

Bob Marino

A little more challenging in the search-based business. What we're really excited about is the ability to bring [indiscernible] point of view [ph] our brand, and mobile is really a different animal. We've been spending and investing against that and we have made progress there. And that's why I remain excited by the growth in the mobile channel. We know where that will ultimately lead us.

Shawn Milne – Janney Capital Markets

Thank you.

Operator

And our next question comes from the line of Kevin Kopelman with Cowen & Co. Please go ahead.

Kevin Kopelman – Cowen & Co.

Hi. Thanks a lot. You talked a little bit about discounting and the competitive environment in the fourth quarter. Could you just talk about what you're seeing in the first quarter to date? How does it compare in terms of the discounting environment, and also from a consumer demand perspective? Thanks.

Bob Marino

So we're seeing a similar -- we're seeing improvement in the competitive promotional environment quarter over quarter, but it is more promotional than the same period a year ago. And that's what, you know, between the fourth quarter, what we're seeing year-to-date, is what we factored into our guidance. And again I want to reiterate, because we're seeing that, we are also taking this occasion to really alter our marketing to push our more prominently growing and more profitable product lines forward. And that mix change is what we're trying to drive this year. But it will take some time, that's why we have the guidance we put forward in 2014 to achieve that mix.

Kevin Kopelman – Cowen & Co.

Thank you.

Operator

And our last question comes from the line of Aaron Kessler with Raymond James. Please go ahead.

Ben Cohen – Raymond James

Hey guys. This is Ben Cohen on behalf of Aaron Kessler.

Just wanted to know what your repeat customer rate was for the quarter and how you see that trending moving forward.

Monica Johnson

Yes. So repeat rate for the quarter in total was about 30% for Q4, so, higher in the previous quarters when we got those influx of customers, in Q4 it drops a little bit. But I think the important thing to note is it's up about 1 point year over year.

Ben Cohen – Raymond James

Great. Thank you.

Operator

Ladies and gentlemen, that does conclude our question-and-answer session and it also concludes the CafePress fourth quarter earnings call. You may now disconnect.

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CafePress (PRSS): Q4 EPS of $0.18 misses by $0.09. Revenue of $90.5M (+3.7% Y/Y) misses by $2.02M.