Bare Escentuals, Inc. Q1 2008 Earnings Call Transcript

Bare Escentuals, Inc. (BARE)

Q1 2008 Earnings Call

May 1, 2008 4:30 pm ET

Executives

Andrew Greenebaum - ICR, Inc.

Leslie Blodgett - Chief Executive Officer

Myles McCormick - Chief Operating Officer and Chief Financial Officer

Analysts

Neely Tamminga - Piper Jaffray

Jim Duffy - Thomas Weisel Partners

Jacqueline Rider - Lazard

Joe Altobello - Oppenheimer

Lyn Walther - Wachovia

Will Chappell - Suntrust Robinson Humphrey

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Bare Escentuals Incorporated First Quarter 2008 Result Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this call is being recorded today Thursday May 1, 2008.

I would now like to turn the conference over to Mr. Andrew Greenebaum. Please go ahead.

Andrew Greenebaum - ICR, Inc.

Welcome to Bare Escentuals first quarter of fiscal 2008 conference call. On the call today from the company are Leslie Blodgett, Chief Executive Officer; Myles McCormick, Chief Operating Officer and Chief Financial Officer.

By now, everyone should have had access to the first quarter of fiscal 2008 earnings release, went out today at approximately 4:00 pm Eastern Time. If you have 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. The call is being webcast and the replay will be available on the company's website for one month.

Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements, management may make additional forward-looking statements in response to your questions. These statements 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 year-ended December 31, 2007 for more detailed discussions of those factors that could cause actual results to differ materially those projected in any forward-looking statements. Bare Escentuals assumes no obligation to revise or update any forward-looking statements may be made in today's release or call.

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

Leslie Blodgett - Chief Executive Officer

Thank you. We are very pleased with our first quarter results, which we believe reflects the strength of our brands and our ability to driver result in a challenging consumer environment.

Our net sales for the quarter of 2008 increased 21% to over $140 million due to the continued growth of our brand, particularly within our premium wholesale business and Bare Escentuals boutiques.

Our net income for the first quarter rose 26%, over the first quarter last year to approximately $26 million. We are very pleased with these results as we continue to increase our market share and acquire new customer significantly outpacing the trends in the broader cosmetics market. Myles will provide additional details regarding sales and earnings comparison in his comment in a few moment.

But let me first provide a few updates as to recent initiatives that we have been focused on. First of all, we are happy to report back on the excellent health of the bareMinerals brand and the continued excitement within our customer community. We just returned from our second annual BE bus tour where we covered over 2000 miles visiting 5 cities along the East Coast including stops at three Bear Escentuals boutiques. The QBC studios in West Chestier Pennsylvania, two national artist events as well as surprise visit to spas and saloons along the way.

Over the course of 9 days we spoke to thousands of loyal customers. Many of whom shared there stories about how bareMinerals has changed the way they feel about their skin. We also got to meet many women who had recently been introduced to the brand either from a friend relative or co-worker. I am always amazed that for as many women as we've touched there are so many that were still converting to bareMinerals. Their enthusiasm for the product continues to inspire us and keeps us focused on reaching all of those women we've yet touch.

While we continue to build our brands in the States, we are also making significant strides internationally. We continue to get solid traction in our existing international channels as evidenced by the fact that for the first time our international business represented 10% of total sales in the quarter. At the same we are exploring a number of new globe expansion opportunities.

For example we recently launched our first department store test in UK at Selfridges on Oxford Street in London, which has the largest beauty department in the world. We are thrilled to have received terrific placement within their store located in one of the world's busiest shopping streets. Though it's still early, the launch has been very well received and I personally want to thank all of our employees' partners and customers who contributed to our fantastic (inaudible).

We are on track to open roughly 10 department store doors in the UK by the end of the year and look forward to keeping you updated regarding our progress. We also expect to enter two additional international markets Spain and Canada by the end of 2008. In Spain, we will roll out a limited assortment of our core product in all four Spain doors in the fourth quarter and subsequently we look to test in other international markets with Sephora in 2009.

In Canada, we expect to test on the shopping channel Canada's leading home shopping channel by year end. We will also be testing a limited number of beauty boutiques in Canada with Shoppers Drug Mart the leading Canadian specialty cosmetic retailer. At the same time we continued to investigate physical distribution opportunities in key markets such as Japan and Germany with the expectation of testing retail locations in those countries 2009.

We are also in the process of opening a representative office in Shanghai to support sourcing and evaluate retail distribution in China. We believe that these initiatives will position us for continued long-term growth in our international business.

Another key focus during the quarter was the production of the latest version of our bearMinerals infomercial that Karen Barner and her team have been working non-stop scripting shooting and editing the show. As we've discussed previously for this new show, we have focused on getting back to the core element in messaging that have served us well in prior versions of the infomercial.

We are on track for the infomercial to begin testing in mid May and given time for testing and final editing, we would expect a full rollout by the end of the quarter. We are also looking to more expectably leverage the more than 3 million in media exposure that we put behind the infomercial across retail distribution with the launch of our new getting started kit.

For the first time that branding and packing of the getting started kits will be consistent across channels such that the introductory kit shown on the infomercial can form some of brand perspective to the versions that will appear into four Ulta department stores and our boutiques. The new kits will begin appearing at retailers at the end of the third quarter.

Finally we wanted to provide an update with respect to our efforts and grow our skin care franchise through the expansion of our bareMinerals line of mineral skin care products. bareMinerals represents a natural extension of our leadership in the mineral based cosmetic market place. Its groundbreaking line was launched in 2006 with our skin revival night time treatment and mineral based night time treatment we recently expanded with two new break through skews.

Renew and reveal facial cleanser and blemish therapy which represent mineral based alternatives to traditional skin care products. We launched both products first on QVC utilizing our ability to educate and generate excitement through that channel and followed up with a roll out to domestic wholesale and retail channels. We are very pleased with RareMinerals performance to date and are on track to double the business this year. We look forward to selectively expand the line and ramp up our RareMinerals marketing efforts in '09 including the development of our RareMinerals infomercial.

Now I would like to turn the call to Myles.

Myles McCormick - Chief Operating Officer and Chief Financial Officer

Thanks, Leslie. I'll begin with a detailed review of the results for the first quarter and review our guidance for fiscal 2008. As Leslie mentioned, we're very pleased with our first quarter results which were ahead of our expectations.

Net sales for the first quarter increased 21% to 140.4 million from 115.6 million in same period last year. At quarter end our business mix between wholesales, which is comprised of sale to QVC, premium wholesale customers, spas and salons and international distributors and retail which include infomercials and boutiques remained consistent with the prior quarter at approximately 60% and approximately 40% of the sales respectively.

In our wholesales segment sales increased 31% to 83.9 million due largely to continued growth in our premium wholesales and spa channels. In our retail segment sales increased 10% to 56.4 million, strong growth in our boutiques more than offset and 10% declined in our infomercial business versus the prior year. And as Leslie mentioned we are on track to rollout the new infomercial version by the end of second quarter.

At the end of the first quarter we had distribution in 616 locations domestically in addition to 220 locations in Sephora France. Domestic location at end of the first quarter included 260 Ulta doors, 193 Sephora doors, 83 boutiques, 71 Sephora inside JCPenney doors, 25 Nordstrom doors, and 14 Macy's doors.

Moving onto gross margins, for the first quarter gross margins increased to 72.5% compared to 71.1% in the prior year. Our wholesale gross margin improved by approximately 250 basis point to 67.4% from 64.9% in the prior year due to favorable shifts in the mix between product channels and customers.

Specifically in the quarter we benefited from a larger percent of [open stock] sales relative to kit sales and a shift towards our premium wholesale and spa businesses. Gross margins for our retail segment also improved to 80.1% from 78.8% in the prior year due to our mix shift towards our boutiques, which generate higher margin in our infomercials sales.

SG&A was 50.5 million or approximately 36% of sales up from 39.2 million or approximately 34% of sales in the same period last year as we continue to invest in the sales, marketing, distribution infrastructure that will support or long-term growth.

Net income for the quarter increased 26% to 25.8 million from 20.4 million in the first quarter of fiscal 2007. Diluted earnings per share for the first quarter increased to $0.28 or approximately 93.3 million shares outstanding compared to $0.22 or approximately 92.6 million shares outstanding in the same period last year.

Now, turning to the balance sheet highlights, cash at the end of the quarter was 37.7 million compare to 39.2 million in the prior year. Inventory at the end of the quarter was 69.6 million up 17% from 59.3 million in the prior year reflecting the expansion in both our point distribution and overall sales volume.

Accounts receivable at the end of the quarter was 37.8 million and roughly 13% from the fourth quarter. Capital expenditures in the quarter were 5.5 million for boutique and department store build outs, ongoing IT and corporate investments. Total debt at the end of quarter was 251 million, down from 325 million at the end of the first quarter 2007 and to 265 million at end of 2007, as we continue to use excess cash to pay down debt.

Last quarter, we discussed some of our products were appearing in unauthorized sales channels, which is Cosco and Target stores. During the quarter we received additional information regarding the nature and extend of this unauthorized sales. As a result we now believe we have high degree of certainty regarding the source of that diverted product, few ongoing legal proceedings, there is little we can discuss other than to say we believe the product was sold to a distributor destined for international markets before being diverted back to unauthorized channels in the US. It's important to note that we have ceased business for that distributor in the third quarter of 2007.

Now I would like to move on to guidance for 2008. While we got up to (inaudible) we continue to believe that its appropriate in this environment to be conservative in terms of our guidance. We are closing monitoring the broader cosmetics market along with mall traffic trends. That being said we along with our partners remain steadfast in our approach to continue to invest in marketing and expand our points of distribution. This environment has also allowed us to be opportunistic in our boutique expansion as we had successfully identified and signed an additional 5 boutique locations for 2008 bringing our total new boutique doors to 40 for the year.

With respect to our partner locations domestically, we are on track for the new door openings we have previously discussed while JCPenny almost doubled the number of Sephora inside JCPenny doors, they expect to have by the end of the year.

As you heard Leslie commentary we continue to execute on all fronts and are very pleased with the strength of our brand as evidenced by our strong performance in the first quarter. We remained very confident in our long-term strategy and continue to expect fiscal 2008 sales growth of 20 to 25% and earnings per share to be in the range of (inaudible). To know in order to fully leverage our marketing initiatives we had pushed the launch of our getting started kits from the second quarter to the third quarter at both of our boutiques and our retail workers.

While there is no P&L impact for the year in total this timing shift will result in transfer of sales and earnings out of Q2 and into Q3. Finally we expect CapEx to be approximately 27 million reflecting 40 new boutiques for the year and additional infrastructure to support our retail and wholesale growth plans.

That concludes my comments. Back top you Leslie.

Leslie Blodgett - Chief Financial Officer

Thanks Myles. Before we turn to Q&A. I really want to thank our loyal customers as well as our brand partner's Sephora and Ulta along with their teams in the field for all of their support. I would like to end with a quote from a customer that I received just this morning. Julie from New York wrote "your products have affected me deeply on a personal emotional level. They have also created within me a desire to try to share them with as many people as I can". To me this comment reinforces our purpose as a company and reminds us that our brand is so much more than just our products.

With that I'd like to turn the call back to the operator and open it up for questions.

Question-and-Answer Session

Operator

Thank you ladies and gentlemen. (Operators Instructions). And our first question comes from the line of Neely Tamminga from Piper Jaffray. Please go ahead.

Neely Tamminga

Great. Good afternoon and let me start off by congratulating you on a fantastic quarter.

Myles McCormick

Thank you.

Neely Tamminga

Yeah I just want to just really kind of two points of clarification here and then just one more just hypothetical question on where you are with respect to filling management? I mean I think you guys have had some openings and you have been kind of close to filling them and now you are not. So kind of where you guys thinking in terms of your management team members and then I will just have two points of clarification after that?

Leslie Blodgett

Yeah you know we are not as far along as we'd hoped to be at this point. But you know, Neely we are definitely making progress and we feel really good about that.

Neely Tamminga

Do you have a time line that we can maybe be looking for Lesile?

Leslie Blodgett

Second quarter, yeah.

Neely Tamminga

Second quarter? So it's around the corner.

Leslie Blodgett

Yeah, I guess definitely.

Neely Tamminga

Okay great. Thanks for that. And then just point of clarification, Myles you are talking on the guidance about this no P&L impact to the year, but just shifting of earnings from Q2 to Q3. I mean the Street is sitting in a $0.26, I mean this is a good opportunity to kind of make sure everybody's in alignment about this issue. Is this material? Are we talking like $0.01 to $0.02 are we talking 10 to $0.15? I mean can you give us an order of magnitude of what this looks like or do you think that people are kind of appropriately already $0.26 and don't run away with the enthusiasm heading into Q2?

Myles McCormick

Without commenting on the absolute numbers, we think the impact from moving from Q2 to Q3 is roughly a few pennies.

Neely Tamminga

Okay. And then in terms of costs for Q2, I mean obviously you guys have been doing a lot of infrastructure spent. Do you feel as though you pulled some of that cost accelerated up into Q1 or do you think the level you know, I've seen infrastructure spend could be similar in Q2 to what we saw in Q1?

Myles McCormick

Level will be probably stepped up from Q1 and then actuality will be…

Neely Tamminga

In dollars?

Myles McCormick

Right in dollars, as we begin to roll-out a significant portion of our stores towards the end of the quarter. We will have a little bit of that up front. But yeah you will begin to see that build that now through the balance in the year. You know by time you get between Q3 and Q4 they start flattening out a little bit more as they did last year.

Neely Tamminga

Okay great. Thanks and good luck to you guys.

Myles McCormick

Thanks again.

Operator

Thank you. And our next in line is Jim Duffy from Thomas Weisel Partners. Please go ahead.

Jim Duffy

Thanks. Quarter well done.

Leslie Blodgett

Hi.

Myles McCormick

Yeah Jim.

Jim Duffy

Yeah just a follow-up on the Q2 question. So from a revenue stand point what's the order of magnitude that we are dealing with from the shift? Is that something that’s likely to bring year-over-year growth in Q2 below your annual growth objectives.

Myles McCormick

Yes it will. That’s right.

Jim Duffy

Okay. And then I was wondering if you can comment on what we are seeing in the premium wholesale channel, it looks like from a year-to-year growth standpoint we are seeing the deceleration in that channel. Is there something particular that’s waiting to that or is it a makeshift in expansion in those doors? Any color you can provide there will be helpful?

Myles McCormick

Yeah, great question. First let me say that the results overall all for the channel were very much inline with our expectations. And as you know there are a number of factors that lead to the variability between door growth and selling growth. In particular for this quarter Q1 the major factor has to do some comparability issues of our selling in advance of our launch in Sephora France as in 2007. That's part of it. I think when we get to a full year basis, you will see a far greater parity Jim on door growth versus revenue growth.

Jim Duffy

Okay.

Myles McCormick

Between quarters it will bounce around a bit.

Jim Duffy

Very good. And then more of a qualitative question. With regards to the new version of the infomercial what should we look forward to? What are some of the highlighted changes that you've made in this most recent version?

Leslie Blodgett

You know Jim, I am really excited about this show. We are really close right now. We have great testimonials and a lot of them have just been using the product couple of months which is I love to see that. Just great energy and really focusing back on the core message of the brand and the complexion and why we are here and just reinforcing all of that. So I am very excited.

Jim Duffy

Very good. Thanks so much and good luck.

Leslie Blodgett

Thanks.

Operator

Thank you and our next question comes from the line of Jacqueline Rider from Lazard. Please go ahead.

Jacqueline Rider

Good afternoon. I send my congratulations, a great quarter. I am wondering about your – if you can talk about competition and if you can talk about your share of the market growth of mineral make up category and then your relative growth? You can talk about those issues?

Leslie Blodgett

Yeah. We believe that we are continuing to trend number one in the face categories. Last year we were the number one share in the industry in '07. And I don't know if you saw that we have great results in light of the broader industry trends we are up 38%. In prestige versus the industry which is down 7. And we really believe that we are continuing to focus on what we do best. Now we are definitely mindful of the competition, we are focusing on our extremely loyal customer base and our open stock business is fairly strong. And we are focusing on new acquisition the way we always have been in our special way that we go about that. We have great initiatives in the second half that you will see. But we like the way we do business. We believe that the special major Bare Escentuals loyalty is what drives us.

Jacqueline Rider

Okay great. And are you actually seeing a more of a shift to open stock product versus kits or is that just a first quarter anomaly?

Myles McCormick

No there's been a slight shift and still I don't over emphasis that too much. But there has been a slight shift from a margin impact, it happens to be more significant given the open stock gross margins are far greater than the kit margins. But just a slight shift overall.

Jacqueline Rider

Okay. I will leave it at that. Thank you.

Leslie Blodgett

Thanks.

Operator

Thank you. And our next question comes from the line of Joe Altobello from Oppenheimer. Please go ahead.

Joe Altobello

Thanks, good afternoon. First question just want to go back to the shift on the getting started, I am sorry if I missed this, but why the shift is this a conscious decision or just it is happened that way.

Myles McCormick

We had originally planned it to coincide with the launch guarantee infomercial, but realized there is far more marketing initiatives building to the third quarter in order frankly to get that lined up with our retail calendars in May just so much more sense to push that to really give it the greatest opportunity when we launch it.

Joe Altobello

Got it, okay. And then just wanted to go back to Jim's question earlier. It looks like -- if you looked at the premium wholesale business, the sales have been from 3Q to 4Q to 1Q relatively flat, your door count is up pretty significantly, it is some seasonality turned to develop in that business?

Myles McCormick

Yeah, definitely I can get the scale of that. Where now seasonality has more of a play than it had in the past particularly in the holiday time period. But again here a lot of this goes down to, as I said before, part of its comparability issue or it is just the timing of when these new stores are coming into it. As I said before, I think when you get to a full year view on this, the numbers will come into far greater parity.

Joe Altobello

Okay. And then lastly, if I could, obviously, this earning season we head a lot of beauty companies talk about some weakness in certain channels, I was curious you know how trends are thus far in April? Any different from the March quarter?

Myles McCormick

Well definitely. I mean the one is certainly big aspect that happens in April versus so in the first quarter is the shift in the calendar for better future and spring breaks. So perhaps that’s what everybody else is saying, I think in regards to the overall strength of the brand things are very consistent

Joe Altobello

Okay, great. Thanks.

Operator

Thank you. And our next question comes form the line of Jacqueline Rider. Please go ahead

Jacqueline Rider

Hi another question, your new distribution center you know are you done with duplicates that caused there and are you going to be able to articulate to us you know what the annual payment from that move are?

Myles McCormick

Yeah, we are done, we basically closed up the outsource relationship from sort of servicing from an outbound prospective at the end of the first quarter. So we are now sort of operating 100% across all lines of our distribution internally. The overall annual expense savings is expected to be significant, we surely won't get all that this year, but you know we believe based on prior year run rates that the numbers and sort of around $45 million

Jacqueline Rider

And we will start seeing that immediately in the second quarter and I guess you are just going to spend the upside for now?

Myles McCormick

No, you are seeing the -- you will alternatively see the upside roll through as the margin leverage, we are effectively reinvesting that which we are reinvesting that into both the boutique expansion and international. So our goals to keep our infrastructure investments as closing inline to sales at this time period during our revenue growth -- during our overall growth phase here. So we will try to keep that as close as possible, so I get to an extents yes, we will be putting that back into the business

Jacqueline Rider

Okay great. And on the international distributor line, I know that’s a small piece of your business, but I thought that was going to come in a bit more given you, I guess finished you deal with Japan distributor? And what's going on with that line item?

Myles McCormick

We are still having -- two things are going through that business one, is we've got the balance of the distributors that we have operating with us our business is improving actually having very strong business in Scandinavia. The other aspect is we are close to that business is the partnership that we had in Japan for infomercial.

Jacqueline Rider

Okay. And finally, so you are going in for all boards of Sephora Spain? How many doors are those?

Myles McCormick

It’s 45.

Jacqueline Rider

And do you see -- how soon could you going to other region for Sephora?

Myles McCormick

We will begin exploring that as early as Q1. I wouldn’t expect a rollout like we are dealing with Spin until likely mid year. If that pass we will really need to do what we did in Spain which is just a couple doors ensure that our marketing issues and training issue are set up appropriately and then we will go. The good thing is that our relationship with Sephora is very strong evidence of us moving as fast as we can.

Jacqueline Rider

And so how about square foot in the US within the Sephora doors, how do you think that will go this year. It looks like you have gotten a couple of racks on top of the gone to learn it looks like this pace is improving.

Leslie Blodgett

Yeah, we are continue to test different occasions and pre standing units and we are always trying to think. So we are both you know partnership is great and we are always looking for new ways.

Jacqueline Rider

Okay, great. Thank you very much.

Leslie Blodgett

Thanks Jac.

Operator

Thank you. And our next question comes from a line of Lyn Walther, from Wachovia. Please go ahead.

Lyn Walther

Thank you. Just a couple here one more on premium wholesale for you, just to sound clear. I understand that the selling comparison with Q1 for Sephora France. So should we be begin to see more parity with door growth starting in Q2, going forward?

Myles McCormick

Yeah, that's exactly right.

Lyn Walther

Okay. So there is no other like big selling things that are going to impact that?

Myles McCormick

No, nothing.

Lyn Walther

Okay. And then you mention that JCPenny, Sephora, can you just give us a number that they have tied you for 2008 and we should be start modeling that and can you talk about how the productivity in the JCPenny Sephora compares to that of a regular Sephora?

Myles McCormick

Sure. So in total for the year it’s a increment $47 doors, last year they ended up the year with 47. So I think about until 94 door by the end of the year approximately. In terms of the overall performance of JCPenney, given the alternate size, the size of the store itself or store within there the store performs at roughly you know a quarter to a third an average Sephora door for us.

Lyn Walther

Okay. And then just if you can expend on some of the comments you made about the Mall traffic and issues with the broader cosmetics market. Since you are in a number of different channels you know maybe just talk about what you seeing and any color on that would be helpful?

Myles McCormick

Yeah, we don't have specific information as it pretends to mall traffic per se anecdotally we are hearing softness in certain market consistent with broader retail feedback. I think in large part when we look at the result in the broader cosmetics space as well as we mention we see the procedure category had some challenges and those categories not as much. But overall cosmetics in Q1 looks like they were down in single digits. I think two things here that certainly has benefited us, as well as our partner [FFD] with the overall trend and where the consumer shopping for the cosmetics, which is certainly benefited Sephora overall, as well as with Ulta and we are benefactors in that as well.

Lyn Walther

Okay, thanks. And just finally, in terms RareMinerals any new products in the pipeline for this year and I don't know if you can maybe give any sense of how big you think this opportunity is?

Leslie Blodgett

We don't have any new products launching this year. But in the first quarter '09 you will see some additions and we expect just so to put this in respective we expect to be top five brand of prestige in our skin care line going forward, that’s what our goal is.

Lyn Walther

Okay, thanks. That’s helpful. Good luck guys.

Leslie Blodgett

Alright.

Operator

Thank you. And our next question comes from the line of Will Chappell, from Suntrust Robinson Humphrey. Please go ahead.

Will Chappell

Good afternoon. Can you -- just sort of clarification and you might right away hit this, for the UK retailers are the classified as premium wholesale and we see any chances of reclassifying based on I guess regional or is they are going to stay that way for a while?

Myles McCormick

Yeah, it will go to premium wholesales like US department is at this point. And we will meet out and with more clarification on reporting as soon as this businesses grow on the run in excess of 10%.

Will Chappell

And Myles can you just follow-up on, you might really talk about this debt structure, you paid down debt in the quarter and what you are looking for interest this year and any changes on the go forward basis?

Myles McCormick

Yeah, we continue to do for [Wal-Mart] strategy that we articulated earlier which is using excess cash to de-leverage the balance sheet, we believe its appropriate particularly in light of today trying to create more flexibility for ourselves, reduce operating risk et cetera. Overall interest expense for this year is likely be roughly 15 to $16 million?

Will Chappell

Got you. And then finally again on the share count you might have talked about it, but is there any reason why you are expecting the average share count to be up 500,000 shares from the March quarter to the full year average?

Myles McCormick

No, not quite. I think it should look fairly close to that, now perhaps ticking up to even 94.

Will Chappell

But if went from 93.3 this quarter, so is there a big step up in the next couple of quarters?

Myles McCormick

No just sort of an expectation of ongoing ramp and et cetera.

Will Chappell

Okay. Alright, thanks a lot.

Myles McCormick

Okay.

Operator

Thank you. (Operator Instructions). Your next is a follow up from Neely Tamminga from Piper Jaffray. Please go ahead

Neely Tamminga

Thanks and probably the best pronunciation of my name ever. Hey guys, a little bit more on Spehora France and Spehora Spain, I think it was -- Spehora France, it's clearly a great launch last year for you in April and you guys added to your SKUs I believe in September, October type timeframe last year in that channel. And it seems to me too that they seem to be dedicating more space to you, more open pocket et cetera in the France division. Do you get the sense that they want you to may be skip a step or two of that SKU creep over into Spain and just kind of launch with an initial kind of 36 or 40 type SKUs and does that kind of give you - what does that look like in terms of the planning for that from an inventory perspective so it's just you, may be little bit more discussion between that?

Leslie Blodgett

Neely, we are going to be going into Spain with the same assortment that we have in France and look at stepping it up as we have been with Spehora France, just sticking with the core, so we have planned for that type of rollout. Does that help?

Neely Tamminga

I mean, you have more SKUs today in France than what you launched, so you are going to go launch into Spain with what your French assortment looks like today or how you launch France?

Myles McCormick

We will do how many launch France, it was important for us to do so to make sure that the core message is solid before and then which is exactly what we did in France. And we stepped it up, SKU by SKU to make sure that we were introducing the brand the right way. Now we will continue to do the same thing in Spain. Now may we move faster? Perhaps. We are today in France we have got about 65% of doors that have roughly two days in there with a great assortment having roughly 100 SKUs and then we still have roughly 35% of the doors that we just can't get. We are looking to expand there, so it's in the process but it's important for us to make sure as we go, the message is very clear and it's simple from the outset.

Neely Tamminga

Any Myles, just a clarification, I am speaking of kits versus kind of base and looking at Nordstrom's business, these guys have - got the dedicated hard shops, you guys were awarded the number of gross shops from the call. There is also I think like 16 additional doors that have just kits. Are those kind of laying the groundwork for future door hard shops or do you sense that Nordstrom is looking to kind of accelerate its exposure in Bare Escentuals?

Myles McCormick

In many of the cases that is true. The timing is just more of a question, whether or not they have a full space available to us, but yes we had used that as a vehicle to enter those stores a bit quicker with just the kid-only.

Neely Tamminga

Okay, great. Thanks guys. Good luck.

Operator

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

Andrew Sawyer

Hello guys. I just had a quick one on competition. I was just wondering as you guys look out the…?

Leslie Blodgett

You there?

Operator

And pardon me. It does seem that your line dropped. (Operators Instruction)

Andrew Sawyer

Yeah. Can you hear me now?

Operator

Your line is now open.

Andrew Sawyer

Hello I guess I was just going to ask a quick question about competition. Is there any of these emerging competitors out there, whether you view that as a differentiated product or something that you would feel like you can keep an eye on either from the hands of consumers or from one of the major retailers.

Leslie Blodgett

There is nothing really special going on out there. Minerals is a buzz word right now. Its everywhere. People are launching it. We knew that this was going to be big and it wouldn’t be a trend anymore. So I wouldn’t say that there is anything really special going on, just that the industry is really embracing this categories and expanding the awareness. But we are keeping close to us and seeing what's happening. But right now, no, I just see that minerals is the word everyone is using.

Andrew Sawyer

There is an alternative questions, you are seeing any of the larger companies either spend heavily or try and buyout the premiums space within Sephora and Ulta from under you?

Leslie Blodgett

They are definitely spending a lot of money that’s for sure. I don’t know, I don’t see that happening in the channels that we are in.

Andrew Sawyer

And just quickly, I mean QVC numbers continue to look really strong, is there anything -- is kind of surprising in light of what we are seeing from consumer spending is there any particular color there or is that specific or is it QVC strong generally?

Myles McCormick

Andrew I think its reflects two things, one is we continue to have a great business for QVC domestically, but also our international business with QVC is also very positive.

Andrew Sawyer

Okay. Alright, thanks a lot guys.

Operator

Thank you. And our final question is a follow up question from the line of Joe Altobello from Oppenheimer. Please go ahead.

Joe Altobello

Thanks. I just wanted to ask a question on channel mix in the new Shanghai office what's the strategy to attack that market, is it with Sephora or is it infomercial or is it a combination?

Myles McCormick

We are really early, we have explained all the alternatives at this point. We know that Sephora has got a really nice business in China developing at this point. I had an opportunity to visit there and to see what they are doing. They are really executing wonderfully there.

Joe Altobello

Are you casting with them there?

Myles McCormick

We are not. Again we are sort of in our exploratory in diligence state at this point. But as you know, we are looking at all these alternatives right now.

Joe Altobello

The timing is 2009, 2010 I imagine.

Myles McCormick

It would be, yeah. There is a significant lead time from a registration perspective in that country.

Joe Altobello

Okay, perfect. Thanks.

Operator

Thank you. And I am showing that we have no further question s at this time, please continue with any closing remarks.

Leslie Blodgett

Thanks so much everyone for your participation today and we look forward to speaking to you after the second quarter.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you.

Comments

[User 191531]

This product is incredible! Talk about perfect lips-everytime!