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Here’s the entire text of the Q&A from Alloy’s (ticker: ALOY) Q3 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Question-and-Answer Session

Operator

Operator Instructions Your first question comes from Jeff Van Sinderen of B. Riley.

Q - Jeff Van Sinderen

Rob, I guess you can address this. The business at dELiA*s, I was just curious to know if you could give us any more color on some of the operating metrics like transaction, AUR, UPT, et cetera.

A - Rob Bernard

At this particular point in time, we have not chosen to comment on that, and so it hasn't been part of our calls to talk about, transactions, UPT, ADS, AUR,et cetera, so also being in a quiet period, it will be something we will talk about in the future amongst our board and decide what we will decide to report on publicly or not.

Q - Jeff Van Sinderen

Okay. And then relevant to dELiA*s. Any more color you can give us in terms of that business and also the rest of the merchandise business for holiday in terms of how you are positioned there?

A - Rob Bernard

Well, as I mentioned we set our dELiA*s holiday floor set four weeks ago, and we have met our expectations in the first four full weeks, so we choose to believe that we are positioned well for the ensuing holiday period, going into our fourth quarter. We will update our assortment as I mentioned Wednesday before Black Friday for one last fluff or ingest to ensure that our final six weeks look great up to January 1. So retail I would say is on plan, meeting expectation for holiday and pleased with that. I also in direct mentioned that as a group, our three direct brands, our direct business we start what we call our holiday books at the beginning of October, and there are three additions in each of our girl's businesses and two in our young men's business, and we, what I mentioned earlier was that collectively, our direct marketing business is meeting their expectations for the beginning of the holiday direct business. So we are pleased at this point. We don't see any aberrations one way or the other.

Q - Jeff Van Sinderen

Okay. And then since the end of the quarter, I would assume you've gotten quite a bit more inventory in. And I am just wondering in terms of maybe looking at dELiA*s and the rest of the merchandise business on a comp basis since, for example, at dELiA*s you are running positive comps. How should we look at the inventory position? Should we think that you are up on a comp basis in inventory for holiday?

A - Rob Bernard

Well, we actually stated that we started the beginning of this quarter, which would have been November 1-ish, with less inventory or slightly more inventory than a year ago with nine more stores. So from a retail point of view on a per-store basis, we have less inventory than a year ago, and in total, I would say that, as I mentioned, we manage our inventory very conservatively. We are looking constantly for sourcing strategies that we can continue to improve turn, and so we, again, I think it would be fair to say that our inventory, we are not looking for inventory increases that would exceed what our comp increases and our stated goals would be.

Q - Jeff Van Sinderen

So, okay, so can I take from that that basically that if you are turning it faster, in other words, you can keep inventories lower on a percentage basis.

A - Matt Diamond

Yes. I mean, Jeff, if you look at the inventories just quarter over quarter versus last year, the inventories are actually down, and most of that is attributable obviously to the merchandising business. So they're getting the comp store sales increase, they're getting more productivity from the direct marketing business and their inventories are actually on an absolute basis down from last year. So inventories, I guess the core of your question is, inventories, are they appropriate for the fourth quarter.

Q - Jeff Van Sinderen

Right.

A - Matt Diamond

I think they are appropriate. They are better managed than last year, and we think that obviously our mid single-digit sales increases are achievable given these inventory levels that we are showing right now.

Q - Jeff Van Sinderen

Okay. Fair enough. And then can you just update us on the timing of this spinoff as you see it and then also on the potential reverse split?

A - Matt Diamond

The timing of the spinoff is really as we have stated. We are going back and forth with the with the SEC. We haven't change our time frame which we think will be certainly before the end of the fiscal year, but we are obviously working to try to make that ASAP. And with regard to the reverse split, which is really will be an Alloy Media Marketing issue, that will obviously be done post split or post spinoff, and will be done really as soon as we can. We've got to get a shareholder meeting, et cetera in order to execute that, but we are not delaying that. We will try to get that done as soon as we can.

Q - Jeff Van Sinderen

Okay, great. Thanks very much and good luck for holiday.

A - Matt Diamond

Thanks, Jeff.

Operator

Your next question comes from Douglas Anmuth of Lehman Brothers.

Q - Douglas Anmuth

Thanks guys. A couple of questions on the media side of the business, Matt. I'm just wondering if you can elaborate more on what is driving the sales productivity within the business and also what you are really seeing in terms of shifting the business to the higher margin properties? I have a couple of follow-ups, thanks.

A - Matt Diamond

Sure, I would say a number of factors and we outlined some of them in my script, including improved management systems, better insight into projections and, therefore, able to react and go after various accounts. I think management in general is more experienced and therefore more knowledgeable about non traditional marketing and our set of assets. I also think there are some macro factors, including the fact that the Company's brand name is getting stronger and stronger as really leaders in both nontraditional marketing and in the youth market, and I think that has helped us with some of our larger clients that recognize us and as we present different opportunities, they already know who we are. Good renewal rates with existing clients and just generally developing a reputation in the space has all helped us significantly. To your second question, which is the higher margin properties, basically between our interactive properties, our out-of-home properties, our database properties, those are three of our larger margin properties that continue to perform well. We think there is upside in all three going forward, and that's what is probably most encouraging for us is we are going to continue to focus on those. Some of our internal plans, commission plans and things like that are all geared to encourage those assets as well.

Q - Douglas Anmuth

And are you able to break down the revenue mix between the media assets?

A - Jim Johnson

This is Jim. We haven't done that so far. But certainly as we look towards a post spinoff world, that is something that we are looking at doing, which is, kind of reconfiguring some of our segments and reporting on maybe a lower level of detail than we have in the past.

Q - Douglas Anmuth

Okay. And then just in terms of, given that this was the best growth that you have had in the media business in several quarters, Matt, what do you think is really the primary drivers here in terms of pricing the, the number of clients, deeper share of clients' wallets, or are you selling out more inventory. How would you rank those?

A - Matt Diamond

I think, keep in mind we had said about a year ago that our intent for this fiscal year was to have mid single-digit growth for the full year, but basically the first half being flat and the second half particularly of the third quarter contributing to it. So I think one of the encouraging things is that we really are on plan and on schedule throughout this entire year. So while we are, of course, very pleased with the results for the quarter, we were also very pleased with the first and second quarter we were very much on track, and I would say that, to answer your question throughout the year, what has happened for us to follow this half, first through cost cuts and now through some of this revenue growth is greater insight, I would say good metrics at the end of a program. We were able to show clients good research so we can show the effectiveness of what we have done, but also as I said earlier, I think the fact that we've got an increasingly strong reputation in the nontraditional youth market is bringing more clients towards us, and enabling our sales force to more effectively sell. I think we've through experience, through better metrics internally, cost cuts that enable us to focus on really our superstars and reward them while making sure those that are not as successful we either assist or remove. I think all of those have been big factors in the success throughout the year particularly this quarter

Q - Douglas Anmuth

Okay. Great, thanks, guys.

A - Matt Diamond

Thanks.

Operator

Your next question comes from Paul Suns of Suns Partners.

Q - Paul Suns

Hi, I had a question for Rob. Rob, what is the margins in the premiere stores?

A - Rob Bernard

I don't believe to this point in time, Jim, we've reported on the margins at premiere stores.

A - Matt Diamond

Overall, Paul, why don't I give you a, why don't I give you the segment gross profit percentages for the third quarter. Direct is, total company is 50.9 was our gross profit percentage in the third quarter of '05 that breaks out into segments between direct at 55.1%, retail at 53.3%, and sponsorship at 47.5%.

Q - Paul Suns

Is there any comment you can give us on, on the gross margins of the new stores compared to the original stores?

A - Matt Diamond

Yes. We are just thinking, we are not trying to be difficult or anything. The S1 has been published and we have a certain amount of information that's in there. And we haven't really broken out new store metrics versus old store metrics. I think in general, I think in general--.

A - Jim Johnson

I would say this, I would say this, Paul, that we are pleased with the margins in the new stores. That they, as we say in the S1, the new stores are planned to be approximately 30% more productive than the existing chain or roundly about $400 a foot versus $300 a foot. So productivity is one number. Margin rate would be another. The margin rate in the new stores would, by definition, be a couple of points higher than the existing chain because they would start with 100% brand-new merchandise, no markdowns, not encumbered with any markdowns. So in the third quarter that we just finished, and they also enjoin the same sell through rate that the Company did which we were pleased with. They outperformed the Company by, I don't know, 150 basis points, I guess. Nothing completely extraordinary but again, we are pleased with both their productivity and their margin rate.

Q - Paul Suns

Basically the plan you seem to be, the plan you articulated both for the existing stores and for the new stores in terms of the margin, seems to be, you seem to be on that plan or maybe a little bit ahead of it.

A - Jim Johnson

Very well said. We are definitely a little bit ahead of our more original plan put forth a year ago when we started on these calls.

Q - Paul Suns

Great, thank you.

A - Jim Johnson

Thank you, Paul.

Operator

Your next question comes from Brian Gonick of Corsair Capital.

Q - Brian Gonick

Hi, good afternoon. Could you give us the segment EBITDA, Jim?

A - Jim Johnson

Sure, Brian, for quarter three '05 direct marketing adjusted EBITDA is 4.5 million. Retail is $1.7 million. Sponsorship is 13.7 million, and corporate is a negative 7.5 million for a total of 12.4 million.

Q - Brian Gonick

And the spinoff related costs are incremental to that?

A - Jim Johnson

Yes. Spinoff related costs would be incremental to the numbers that I just gave you. I eliminated them as one-time costs.

Q - Brian Gonick

Great, okay. Thanks a lot. You are welcome.

Operator

Operator Instructions At this time, there are no further questions.

Matt Diamond, Chairman and Chief Executive Officer

Thank you all for joining us for our third-quarter conference call. We look forward to updating everyone on the spin as we are able to get more information and get it out to you. Thank you very much.

Operator

Thank you. This concludes today's conference, you may now disconnect.

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