Inter Parfums, Inc. Q1 2008 Earnings Call Transcript

May. 8.08 | About: Inter Parfums, (IPAR)

Inter Parfums, Inc. (NASDAQ:IPAR)

Q1 2008 Earnings Call Transcript

May 8, 2008 9:00 am ET

Executives

Jean Madar – Co-Founder, Chairman and CEO

Russell Greenberg – EVP and CFO

Analysts

Linda Bolton Weiser – Caris & Co.

Rommel Dionisio – Wedbush Morgan

Joe Altobello – Oppenheimer

Mimi Noel – Sidoti & Co.

Erin [ph] – Piper Jaffray

Mark Battalion – Finn Capital

Russ Earing – Columbia Management Group

Operator

Good day everyone and welcome to Inter Parfums' first quarter 2008 conference call. At this time I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. I would now turn the conference over to Russell Greenberg, Executive Vice President and CFO. Please go ahead, sir.

Russell Greenberg

Thank you, operator. Good morning and welcome to our 2008 first quarter conference call. If you have not received the copy of the press release we issued yesterday afternoon please contact Linda Latman of the equity group at 212-836-9609 and she will fax or e-mail a copy to you.

Before proceeding further, I want to remind listeners that this conference call may contain forward-looking statements which involve known and unknown risks, uncertainties and other factors that make cause actual results to be materially different from projected results. These factors include but are not limited to the risks and uncertainties discussed under the headings forward-looking statements and risk factors in Inter Parfums' annual report on Form 10-K for the fiscal year ended December 31, 2007 and the reports Inter Parfums' files from time-to-time with the Securities and Exchange Commission. Inter Parfums does not intend to and undertakes no duty to update the information discussed.

As most of you know, when we refer to our European based operations we are primarily talking about sales of prestige branding fragrances which are conducted out of France. When we discuss our United States operations we are referring to sales of specialty retail and mass market products.

Moving on to our record first quarter financial results; as we reported yesterday net sales rose 45% to $123.2 million from $85.1 million. At comparable foreign currency exchange rates net sales were up 35% for the period. European based operations achieved sales of $110.6 million a 46% increase compared to $75.6million in the same period last year. Burberry fragrances were the star performers in the first quarter with most of the sales gains due to a 53% increase in Burberry fragrance sales.

The huge success we have thus far had with the world wide launch of Burberry the Beat was all the more gratifying because the brands existing lines also produced sales gains enlarging the universe of Burberry fragrance customers. Also worth noting, sales of increasing our products more than double as brand sales increased a 175% to approximately $7.7million from $2.8 million in the first quarter of last year.

Sales by our U.S. based operations rose 31% to $12.6 million from $9.5 million in the same period last year; thanks to new products, adaptation of existing products as well as replenishment of stock for our specialty retail partners. Also sales growth reflects international distribution of GAAP in banana republic products.

Moving on to first quarter profitability measures; gross margin was 60% in this year's first quarter as compared to 61% in 2007. With the slight decrease attributable to the effect of the decline of the U.S. dollar against the Euro on European based sales to U.S. customers. Sales to these customers are denominated in dollars while our costs are incurred in Euro. SG&A expense as a percentage of sales was 45% compared to 47%.

Promotion and advertising included in SG&A expenses aggregated approximately $16.6 million or 13.5% of net sales compared with $12.5 million or 14.7% of net sales in last year's first quarter. As we noted in yesterday's news release 2008 first quarter sales include a significant contribution from the launch of Burberry The Beat. However, advertising expenditure requirements pursuant to our license with Burberry does not require such spending to be incurred until our distributors sell such products to the retailers. As a result look for the second quarter of 2008 to bear a significant portion of such required advertising expenditures.

Royalty expense included in SG&A expenses aggregated $12.2 million or 9.9% of net sales. In last year's first quarter such expense was $9.6 million or 11.3% of net sales. Operating margins in 2008 were 15.4% of net sales as compared to 14% in 2007. Net income increased 50% to $8.7 million from $5.8 million and diluted earnings per share were $0.42 up 50% from $0.28 last year.

Before passing the call along to Jean, I would like to mention that our Board of Directors approved a three for two stock split in the form of a stock dividend to share holders of record as of the close of business on May 15, 2008. After this distribution there will be a approximately $30.6 million shares of common stock outstanding. Jean, why don't you continue?

Jean Madar

Sure. Thank you, Russ. I join Russ in thanking you for your participation on today's conference call. Russ is in New York and I am in Paris today. I would like to focus some of my discussion on the international distribution agreement that we announced last week with Gap Inc. For our network of distributors across the globe the personal care products that we develop and produce for North American Gap and Banana Republic stores are going to be sold at company owned Gap and Banana Republic stores in Europe and also franchised Gap and Banana Republic stores in South East Asia and the Middle East and also in department stores, customary, duty frees and in-flight air line stores, military bases and other brand appropriate retail outlets.

A portion of the increase in our comparable quarter sales growth relates to international distribution which took place in returned first quarter and actually began on a modest scale late last year where we test marketed certain products at selected UPN retailers. Banana Republic personal care products are now in about 30 UK department store of locations including House of Frazer, Gen Louis and Howards.

Those of you who do a certain amount of flying may have seen our products on Delta Airlines, American Airlines, Continental Airlines and Canadian Airlines; they are all selling Banana Republic personal care items in their in-flight listings. I should also mention that Banana Republic and Gap personal care items are currently available at about 119 military stores on American Military bases across the globe.

Gap Inc and Inter Parfums believe that personal care products are a great way to increase the rich of brands and build awareness for brand in international markets. This new dimension of our agreement with Gap Inc resembles the one we have in place with Burrstone and that we directly supply company owned store in North America and at the same time utilize our distribution network to place products in certain retailers in certain countries around the world.

We are also regularly exploring additional avenues to expand our specialty retail business and we are in discussions with a number of prominent retailers. While we cannot give any assurance that other agreements will be signed we can assure you that every effort is being made to expand this very important part of our business.

During our last conference call in March we discussed Burberry The Beat, including the concept of the target market and its initial success. We are delighted to report that this success is continuing and The Beat is our best ever new product launch. I hope you will be visit Burberry's web site to see the TV ad with the video and related marketing links for Burberry The Beat.

Also in our last conference call we recapped our new product launch schedule for 2008 and we did it again in yesterday's news release. Back in the U.S. we are making excellent progress on the Burrstone Collection, the first in products of men and women's fragrance are on schedule for our launch in November 2008 at 200 Burrstone retail locations in the U.S. followed by international distribution beginning in 2009.

Based upon the strengths of our first quarter and the expectation of growth for the balance of the year we have increased our 2008 guidance. We are now looking for net sales of approximately $460 million and net income of approximately $26.8 million or a $1.30 per diluted share on a trusted basis. As we have said in the past, this guidance assumes the dollar remains at current level.

Before taking your questions let me share with you some of our upcoming presentation. We will be speaking of the Piper – 28th Annual Piper Jaffrey Consumer Conference taking place in New York on June 10 and 11 and the New York are offering to rearrange our schedules to attend the Oppenheimer Conference in Boston in July. Russ will be on the road, we'll see that in Cleveland on the May 16 and in Boston with RedBust Morgan on May 20. We hope that we will get to meet some of you in person at these events.

Operator, I think we can open the floor for questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Joe Altobello with Oppenheimer.

Jean Madar

Hello, Joe. Joe?

Russell Greenberg

Operator, have you opened his line?

Operator

Yes, sir. His line is open.

Russell Greenberg

All right, let's move on to the next question or is there something wrong with your system?

Operator

Your next question comes from the line of Linda Bolton Weiser with Caris.

Jean Madar

Linda?

Russell Greenberg

Operator, you have to take them out of listen-only mode.

Operator

Linda, your line is opened.

Linda Bolton Weiser – Caris & Co.

You guys hear me?

Russell Greenberg

Now I can hear you.

Jean Madar

Yes, we can now.

Linda Bolton Weiser – Caris & Co.

Can you hear me?

Russell Greenberg

Yes, I can Linda.

Linda Bolton Weiser – Caris & Co.

Okay, the tax rate in the quarter was just a little bit higher than we all expected. Can you just clarify for us that is one time in nature or if that will continue to be higher and should we use, what's should we use for the rest of the year for tax rates?

Russell Greenberg

As we stated in the 10Q within the MD&A, we talk about the tax rate and that we established some valuation reserves for taxes assets that resulted from some losses in the four distribution subsidiaries during this first year of our operation. That charge was taken in the first quarter that is something that we are not anticipating that it will reoccur. So as far as the company's projection are concerned, we are basically going back to a normalized tax rate which ranges anywhere between 35% and 36%.

Linda Bolton Weiser – Caris & Co.

Okay, great and then it just seems like given the strength and the sales in the quarter that – I mean it seems to be that your sales guide seems still a little bit conservative. I know you were expecting the additional GAAP International agreement and sales, but I wasn't in my model, so I am finding that to add that in, I have to lower some other things that it just seems all really conservative; are you sensing weakness in your markets or in travel retail and you are just trying to be conservative or can you give a little color?

Jean Madar

Unless you want to…

Russell Greenberg

We have not – as you can tell even from the first quarter we are not seeing weakness in our markets at all. We have a very aggressive launch scheduled for the year. We have been working with GAAP on military and international since July of 2007 and the agreement that we signed with GAAP is actually effective July 2007, so as far as we are concerned this has been part of normal operations, how you build your model is how you build your model.

Jean Madar

And I would like to add that we – all the segments of our business are growing. We want to see some strong sales coming from international. Of course there is – what should I say, a launch which is not great and I think it's important to be conservative even though we see some strength in all the segments of our business.

Linda Bolton Weiser – Caris & Co.

Okay. And just can I ask a question on the gross margin. I mean you explained in the 10Q a lot of details about that and why it was down; could I assume then that the phenomenon with the euro and your cost situation as the compression ease a little bit through the year that will maybe improved the gross margin as the year progresses, is that a rational conclusion?

Russell Greenberg

It's rational but keep in mind that there are several different factors that are going to influence gross margin. Growth rates in specialty retail compared to growth rates of prestige products also has an impact on gross margin. As everybody knows because I said it many times that the highest margin product are in the prestige, all right and there are some differences between the different lines within the prestige as well. In the middle of the road is your specialty retail which runs at approximately 50% margin and then you have the mass market business which is between the 30 – around the 30%, 35%, 40% margin depending upon the line. So product mix is going to influence it and as happened in the first quarter the strength of the euro against the dollar that is also another factor and that seems to play the largest role in this first quarter of 2008.

Linda Bolton Weiser – Caris & Co.

Right, okay great. I will let other people go. Thank you very much.

Russell Greenberg

Thank you.

Jean Madar

Thank you Linda.

Operator

Your next question comes from the line of Rommel Dionisio with Wedbush Morgan.

Rommel Dionisio – Wedbush Morgan

Hi guys good morning. Could you just discuss the New York & Co. business, how that's – some responses seen in the first two months?

Jean Madar

Sure. As you know we have introduced a full line of personal care in the month of November of 2007 at all the stores of New York & Co. In the first quarter of this year we have test marketed line of color cosmetics which is doing very well, so we continue to increase the presence of color cosmetics at New York & Co. and we are on projections for sales this year with NYC.

Rommel Dionisio – Wedbush Morgan

Okay, thanks very much, John.

Russell Greenberg

No problem.

Jean Madar

Thank you, Russell.

Operator

Your next question comes from the line of Joe Altobello with Oppenheimer.

Jean Madar

Finally, Joe.

Joe Altobello – Oppenheimer

Hello.

Russell Greenberg

Hey Joe.

Joe Altobello – Oppenheimer

Hi, can you hear me?

Russell Greenberg

Yes I can.

Jean Madar

Yes.

Joe Altobello – Oppenheimer

Actually I asked a great question, unfortunately nobody heard it, anyway in terms of the specific retailers that you guys are in discussions with, obviously you can't divulge too much, but if you could tell us sort of what types of retailers they are whether they are upscale or downscale from where you are now?

Russell Greenberg

We really can't discuss anything on deals that have not been signed at this point of time, they really wouldn't be appropriate.

Joe Altobello – Oppenheimer

Are they international or U.S. based?

Russell Greenberg

We are looking at both. Some are U.S. based, some are international; very consistent with what we have done so far.

Joe Altobello – Oppenheimer

Okay.

Jean Madar

I would like to add that I think that the business model that we have established for Gap and Banana Republic is really working and we have been contacted by many retailers. We have a very selective approach so we can not say this to everybody, but they have definite set of candidates that makes sense, like I said from a domestic point of view and also from an international point of view.

Joe Altobello – Oppenheimer

Okay, and this is a bit of a softball, but I will ask it anyway; if you look at other fragrance companies have reported this quarter and I guess last quarter as well a lot of them have been pretty weak on the sales line. I was curies what's really driving the difference between their business and yours; is it your brands, is your channels; are you talking difference consumer, difference geography, because the difference is striking?

Jean Madar

Do you know it took us 15 years to build a balanced portfolio and now we are looking at the results of the balance portfolio of very high end brand names such as (inaudible) very worldwide recognized name like Bilberry, English brands like Pulse, specialty retail stores like Banana Republic? I think this quarter is a good picture of all the fault that have been made over the last years and the of course the weakness of the dollar is a plus for us because a lot of our sales are in euro and so it plays with this, but we say again that it's not an accident, it's a well foot work.

Joe Altobello – Oppenheimer

Okay fair enough; and then in terms of Russ your commentary about seeing weakness in your markets or actually not seeing any weakness in market; any early signs of maybe consumer weakness there in the second quarter or any retail will be stocking anything like that.

Russell Greenberg

It's very difficult to comment. I would have to say the answer is no. When we see that the launch the Burberry The Beat happened during a period when we were able to continue to grow the existing lines of Burberry, kind of tells us that for at least the brands in our portfolio we are not really seeing weakness at this point in time.

Joe Altobello – Oppenheimer

And then lastly if I could; the guidance now since January year up was $23 million on sales and about $0.14 on EPS; is the raise in guidance twice now mostly due to the de-launch or are there other factors of foreign exchange for example.

Russell Greenberg

Certainly foreign exchange plays a role in our guidance. As you remember from even the last conference call we basically look at a picture of a three to six month period; historic period in order to work through our guidance. At this point in time we know that the first three months of 2008 are behind us, so certainly that has to play some role in it but it's really a combination. We are looking at where do we think the average rate of the dollar is going to be to the year, where do we think our business is going to be, what launches we have coming out during the year and when are they going to launch; what countries are we going to put the product at, all of that is all taken into consideration and as we continue to see strength in our business and our weakness we will continue to update our guidance.

Joe Altobello – Oppenheimer

But the driver is really The Beat.

Russell Greenberg

The, the driver.

Jean Madar

I'm sorry; the driver is the beat but because we are – for our projections but that we say that the agreement that we have announced next week we have – the international agreement with either gap is also an important part of our whatever – domestic goals.

Joe Altobello – Oppenheimer

Okay.

Jean Madar

So we say that – I don't know if you agree with us, but we still have the main driver of raising the estimates.

Russell Greenberg

Absolutely and in connection with the international agreement with Gap, one of the key aspects of it; although as I mentioned earlier it was signed affective July '07; the actual signing of it is a major accomplishment because now all the markets are really open to us, all right the markets at Gap, Banana Republic and Inter Parfums think that their product going to actually penetrate, so it does open up a lot of doors at this point in time.

Joe Altobello – Oppenheimer

Okay, thanks guys.

Jean Madar

It's because Gap and Banana Republic has stores internationally and we've seen a great appetite from international operators to carry Gap products either in the Middle East or in Brazil or in Russia for instance, Gap is an icon of America and we see that we can have some very, very impressive numbers internationally with Gap in the next 12 to 18 months.

Joe Altobello – Oppenheimer

Got it thanks.

Russell Greenberg

Okay thanks Joe.

Operator

Your next question comes from the line of Mimi Noel with Sidoti & Co. Can you hear me?

Mimi Noel – Sidoti & Co.

Got you.

Russell Greenberg

All right.

Mimi Noel – Sidoti & Co.

Russ, you mentioned the number of doors with the expanded Gap agreement; can you specify the number of franchise and corporate owned stores international and that excludes the other department stores etc.

Russell Greenberg

Oh yes but keep in mind the agreement is not only Gap and Banana Republic stores because it does open it up to international retailers, military and so on and so forth. As far as Gap stores internationally and Jean you can correct me if I'm wrong, but for Banana Republic there is approximately 40 with a concentration in Western Europe and on Gap there's a….

Jean Madar

Japan followed Banana Republic.

Russell Greenberg

Japan and …

Jean Madar

And one store in the UK and for Gap it's mostly – for gap its Japan, Europe; we have company owned store or franchise stores but like Russ says what is important is that we are going to be able to sell these products in any department stores of the regions in the world. So you could expect to see Gap and Banana Products at Sefora in Russia or in France. These I think are a very, very important contract because of course we have a strong domestic business but we think that the international business of Gap and Banana could get as big as the domestic business.

Mimi Noel – Sidoti & Co.

Okay that's helpful, and I get your point but I'm just trying to isolate a number; could you give me that number?

Russell Greenberg

I think you are better off going to Gap's web site.

Mimi Noel – Sidoti & Co.

Okay will do.

Jean Madar

Yes because it's a moving target and they are opening very fast. The international business of Gap is booming.

Mimi Noel – Sidoti & Co.

Okay, okay and then maybe two more questions; just want to verify that the mass business, that's still profitable?

Russell Greenberg

The mass business from the stand point of profitability what we've continue to say is that it continues to contribute to the overall overhead of the U.S. operations and therefore it is still very much a viable business.

Mimi Noel – Sidoti & Co.

I understand, okay and also for the balance of 2008 would you prioritize for me the remaining launches that you have; in terms of anticipated size perhaps?

Jean Madar

For the balance of the year?

Mimi Noel – Sidoti & Co.

Yes. I mean it's –

Jean Madar

As you know we are going to have a very important launch with Quick Silver in September. We have so in the self quarter a very important launch with Senopez. We have also a launch for long terms, so each brand will see something new between second, third and fourth quarter.

Mimi Noel – Sidoti & Co.

Okay and then the last question I have is just if you could refresh my memory; we typically get the launch scheduled for the following year in the fall is that correct?

Russell Greenberg

For 2009?

Mimi Noel – Sidoti & Co.

Yes I just thinking yes.

Russell Greenberg

Yes sometime during the fall.

Mimi Noel – Sidoti & Co.

Okay.

Russell Greenberg

Yes I mean we usually issue our guidance for the following year at the end of November, so it's usually around that time that we have our launch schedule for the following year pretty much firmed up.

Mimi Noel – Sidoti & Co.

Okay I'm all set, thank you.

Russell Greenberg

Thank you Mini.

Jean Madar

Thank you Mini.

Operator: Your next question comes from the line of Neely Tamminga with Piper Jaffray.

Erin – Piper Jaffray

This is Erin [ph] turning in for Neely. Jean just a quick question for you, you spoke to no – see no slow down in any of the international; any of the markets whatsoever.

Jean Madar

Yes, what did you say?

Erin – Piper Jaffray

In terms of you – both spoke to see no weakness thus far in any of the international markets could you maybe just speak to some of the countries or the region that are demonstrating maybe the strongest games.

Jean Madar

The strongest game, yes. I'm sorry, Russ.

Russell Greenberg

If you remember when we released our – the fourth quarter – the sales for our first quarter in that press release we talked about growth in Europe and Asia. For our prestige products Asia was actually up around 56%, Europe was up about 33% those are probably the two biggest markets with the biggest gains.

Erin – Piper Jaffray

And then and respect to your piece there are you seeing a super normal trend with Eastern Europe greater than that 33% now.

Jean Madar

Eastern Europe is doing best of in Western Europe yes obvious in terms of growth, but and that we say that even in the U.S. we've seen sort of growth in our business.

Erin – Piper Jaffray

Okay that's helpful and then just quickly with respect The Beat, is it fully rolled out globally, I remember in your fourth quarter call.

Jean Madar

Not yet no, not yet. We still have good amount of countries to open and these would be done by the end of this quarter, by the end of the second quarter.

Erin – Piper Jaffray

And then I guess just a quick question on you mentioned all the other Burberry lines that you are still seeing solid gains or gains what's the second highest gain after the launch of The Beat; is it London or will it still be Pret.

Jean Madar

London is doing – is still going – is a number two line

Erin – Piper Jaffray

Okay. And then I guess the last question just a housekeeping. With respect to inventory, I mean still up relatively high 46% how should we be looking at that for the balance of the year in terms of working through that or is it just in anticipation for the robust growth or launch that you have there.

Russell Greenberg

Yes, I think the inventory is very much reflective of the launch schedule which is probably one of the most ambitious launch schedules we have ever faced. So I think that as time goes on and as we continue to put product into the marketplace, inventory levels I believe will be a little bit lower as we get towards the end of the year.

Erin – Piper Jaffray

Okay. Thank you and good luck.

Russell Greenberg

Thank you very much.

Jean Madar

Thank you.

Operator

(Operator instructions) Your next question comes from the line of Mark Battalion with Finn Capital.

Mark Battalion – Finn Capital

Hi, guys. A few questions, just to clarify, the sales that you will be conducting on the Gap and Banana Republic products out of the U.S. will be booked into the P&L of (inaudible) if they happen say in Europe?

Russell Greenberg

It's part of our U.S. based operations because the products are emanating from the United States.

Mark Battalion – Finn Capital

Got it. Is it the rough number and again I'm not searching for guidance but just to get a sense of the scale of the business in ‘08 of the U.S. business. Is the scale of that business roughly $60 million to $70 million, is that the ballpark number?

Russell Greenberg

We break out our business by segment in every one of our financial statements, Mark.

Mark Battalion – Finn Capital

Yes, I got it but if I look at Q1, you got $12 million in sales roughly but it would seem as if there is an accelerating trend which would not make it $12 million.

Russell Greenberg

We have not broken out our guidance between U.S. and European operations.

Mark Battalion – Finn Capital

Can you give me a ballpark number?

Russell Greenberg

We have not provided that number publicly, no, I cannot.

Mark Battalion – Finn Capital

Okay. I looked at your 10Q and I looked at the net debt of the business which comes out at roughly $17 million at the end of March. Can you tell me what the net debt situation of the French business was at the end of the quarter?

Russell Greenberg

That's not public information – unless it's put out by the French company.

Mark Battalion – Finn Capital

It hasn't been put out by the French company?

Jean Madar

We will not give you this information. It is that always you try to get something that we cannot disclose. So I don't what you are trying to – there are fixed rules about the disclosure and we are not going to break it for you or for anyone else.

Mark Battalion – Finn Capital

I'm not asking anybody to break any rules and these are not questions. These are just – this is a business…

Russell Greenberg

These are questions about information that's not public. So any other questions?

Operator

Your next question comes from the line of Linda Bolton Weiser with Caris.

Linda Bolton Weiser – Caris & Co.

Thanks. Just a follow-up on the International Gap business. Is the product lines sort of going to be carried in all stores and outlets, same number of SKUs and same price positioning as in the U.S.

Jean Madar

The products are going to be the same in U.S. and international but we will adjust country by country the retail price depending on the currency, depending on the custom duty, etcetera.

Linda Bolton Weiser – Caris & Co.

Okay and then – you said, if I recall, you used to have a part of your agreement with the Gap, a part of the agreement that bars you from making supply agreements with certain other retailers that are positioned closely to them and without naming names, is that still the case? Is there like a little shortlist of retailers that you cannot partner with because of the Gap agreement?

Russell Greenberg

There is a shortlist and as a matter of fact, as any agreement there is always changes that take place. For example, Brooks Brothers was on that shortlist but we got specific permission from Gap to go ahead and sign a contract with Brooks Brothers. So we are really not too concerned about the companies that are on that list. Certainly, I think, that Gap would have a problem if we would try to sign an agreement with Jay Crew but for the retailers that we have been in discussions with, these are retailers that are not on their shortlist.

Linda Bolton Weiser – Caris & Co.

Great, and just one final thing. On the Van Cleef & Arpels, you did mention the sales there being something what, $7 million, $8 million in the quarter. That, looking like it's going to be a $25 million, $30 million brand for the year, is there something unusual in the sales in the quarter or am I thinking correctly on that?

Jean Madar No, you are thinking very correctly and we think that Van Cleef has the potential to become the number two line – will be quickly the number two line in our companies and don't forget that these sales happen without any launches of any new products in the quarter but you have also to remember that last year, our inventory was, in the first quarter was pretty bad on Van Cleef & Arpels. So we must have missed some sales but we are very, very optimistic on our Van Cleef business.

Linda Bolton Weiser – Caris & Co.

That sounds good, thanks very much.

Operator

Your next question comes from the line of Russ Earing with Columbia Management Group.

Russ Earing – Columbia Management Group

Hello gentlemen, thank you for taking my questions. Real quick, I think I'm going back a little bit but I may have missed a number. Can you quantify the impact of the ad expenditures related to The Beat that are going to fall in the second quarter?

Russell Greenberg

No, we did not quantify. I said no, we did not quantify.

Russ Earing – Columbia Management Group

Okay, and going forward, are we going to expect that when we see 2Q sales from The Beat that will have the same kind of carryover of ad expenditures as well into 3Q? Is that going to be something that's going be ongoing?

Russell Greenberg

We believe that most of that will probably happen in the second quarter as our distributors telling to the retailers but it will carry on into the third quarter as well.

Russ Earing – Columbia Management Group

Okay, thank you.

Russell Greenberg

Thank you.

Jean Madar

Thank you.

Operator

There are no further questions. I will now turn the call back to management.

Russell Greenberg

Thank you, Lynn and I thank you everybody for their participation on this conference call, whether you are live or listening via our webcast and as always if you do come up with additional questions, I'm always available by phone. Have a great day and thank you.

Operator

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All participants 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: transcripts@seekingalpha.com. Thank you!