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R.G. Barry Corporation (NASDAQ:DFZ)

F4Q08 Earnings Call

September 9, 2008 10:00 am ET

Executives

Roy Youst - Director of Investor & Corporate Communications

Daniel D. Viren - Chief Financial Officer, Senior Vice President - Finance, Secretary

Jose G. Ibarra - Senior Vice President, Treasurer

Greg A. Tunney - President, Chief Executive Officer, Chief Operating Officer, Director

Analysts

Heather Boxman

Doug Ruth

Ethan Star

Robert Six

Paul Johnson

Operator

Welcome to the R.G. Barry Corporation fiscal 2008 conference call. (Operator Instructions) Mr. Youst you may begin your conference.

Roy Youst

A copy of today’s earnings release has been sent to all who requested it. If you did not receive your copy, please contact [Hon] at 312-640-6688. She will confirm your contact information and send you a copy of today’s release. All of our news releases and SEC filings are available online through www.rgbarry.com.

On the call today from R.G. Barry Corporation are its President and Chief Executive Officer, Greg Tunney, Senior Vice President - Finance and Chief Financial Officer, Daniel Viren, and Senior Vice President, Treasurer, Jose Ibarra.

Please remember that statements contained in this call which are not historical fact should be considered forward-looking statements that are subject to all of the Safe Harbor qualifications set forth in our earnings release, shareholder communications and SEC filings. Actual events affecting the company and the impact of those events upon our operations may differ materially from those currently anticipated. For a list of additional risk factors please refer to today’s news release.

And now here’s Dan.

Daniel D. Viren

We’re going to begin today by asking Senior Vice President and Treasurer Jose Ibarra to recap the fourth quarter; I will break down the full year; Greg will add some additional commentary; and then we’ll open the call up to questions. So let’s begin with the fourth quarter results Jose.

Jose G. Ibarra

Our fourth quarter performance was very positive. Net sales were $18.6 million compared to $14.1 million in the fourth quarter last year. The increase in net sales primarily reflects more shipments to Wal-Mart as a result of being named their lead supplier for [inaudible] slippers. Gross profit for the quarter as a percentage of sales rose by 50 basis points to 38.7%. During the quarter we recognized an insurance gain of approximately $1.4 million representing the difference between our cost and the wholesale price of goods lost when a tornado struck our Texas distribution center in April. [Oreing] net earnings were approximately $729,000 or $0.07 per basic and diluted share versus a net loss of approximately $1.7 million or $0.16 net loss per basic and diluted share in the comparable period a year ago. Our profitability in the fourth quarter makes fiscal 2008 the first time in more than 25 years that R.G. Barry has reported earnings in each of its four quarters.

And now we will take you through the full fiscal year results.

Daniel D. Viren

Fiscal year 2008 was a very good year for us both operationally and financially despite challenges in the market place. Our consolidated net sales rose by approximately 4% to $109.5 million, up from $105.3 million in the previous year. The increase in net sales was primarily a result of sales growth in the mass channels and to a lesser degree from our new business initiatives. Our income from continuing operations before taxes rose to $14.2 million from $12.1 million in fiscal 2007. The $14.2 million included a gain of about $1.4 million from the insurance recovery related to the inventory loss when a tornado damaged our Texas distribution center in April. Net earnings were approximately $9.8 million or $0.92 per diluted share compared to fiscal 2007 net earnings of $25.1 million or $2.40 per diluted share. Our 2007 net earnings reflected a net tax benefit of approximately $13.7 million from the reversal of our deferred tax asset valuation allowance. Conversely, our 2008 results reflect a tax expense of approximately $5.1 million. Our gross profit as a percentage of sales rose to 41.1% up from 39.7% one year ago. The increased gross profit percentage principally reflects increased sales volumes and higher average wholesale prices for our products.

Our selling, general and administrative expenses rose by approximately 5.8% in fiscal 2008 to $32.1 million. This planned increase largely represents our commitment to investment spending in support of our long-term growth and profitability.

We believe that our balance sheet is a good reflection of the company’s growing strength and overall health. At year end our cash and short-term investments were $26.1 million up from $18.2 million one year ago. We ended fiscal 2008 with $10.8 million in inventory down approximately 26% from $14.7 million at the end of fiscal 2007. Business aside, only about 1% of the cost of the inventory at year end was older than one year. And finally, net shareholders’ equity increased to $46 million from $36.2 million one year ago. I also want to call your attention to the fact that during fiscal 2008 we did not access our credit facility instead funding operations entirely from our cash reserves.

Cash is our largest asset and it remains a frequent topic of discussion both internally and externally. We are committed to utilizing all of our assets including cash in pursuit of our growth objectives. We have stated that one of our key growth initiatives is to make an appropriate strategic acquisition. We plan to fund any acquisition from our cash reserves. While other uses for cash may seem attractive in the short term, management and the Board continue to believe that the best use for our cash is currently investing in programs that will add to the long-term growth and profitability of the company.

Now let’s turn to Greg.

Greg A. Tunney

Before addressing 2009 and your questions, I want to add a couple of comments to what Dan shared with you. First of all, I am very proud of the entire R.G. Barry team. To achieve what we did in the retail environment of 2008 requires superior execution throughout our organization. In fact, our profit as a percent of net sales represented an all-time historic high for our company. This represented a tremendous effort by all of our team members.

We once again ended the year as one of our category’s top performers. In fact for the third consecutive year our net earnings as a percent of net sales led not only our industry peer group but also both large cap and small cap apparel groups that we monitor.

We also benefited from our multiple channel distribution strategy which spreads our business across a broad universe of retailers. Dearfoams continue to dominate in multiple channels of distribution. Our two growth initiatives Terrasoles and Superga also received good receptions at the consumer level. They are adding additional diversity to our business by moving us into new retail outlets and introducing us to new groups of consumers. Moving forward we expect these brands to demonstrate healthy levels of growth.

I’ve talked many times about our core strengths. These competencies of design and product development, sourcing, consumer brand marketing, retail category management, supply chain logistics, and relationship building help make us a key resource for many retailers and we’re critical in our selection last year as the lead supplier of replenishment slippers for Wal-Mart USA.

Others also recognize the added value of our leadership which we bring to accessory footwear and slippers. For example, Target Corporation recognized our Utopia brand team as 2008 Vendor of the Year in men’s essentials. Kohl’s Corporation named R.G. Barry and the Dearfoams Corporation as 2008 Best in Class Accessories, and Sears Holding Corporation presented us with its Partners in Progress award. Our marketing and visual design teams were once again recognized internationally this year for collateral sales and marketing materials and trade show displays. We appreciate all these awards but the real value is in the validation they offer retailers that we are bringing them programs that are supported by truly world class organizations.

Developing our core competency has required tremendous focus, discipline and a significant ongoing investment of time and money. We plan to continue investing in building this part of our business in 2009. We believe it is what sets us apart and that all of our stakeholders will benefit from our growing recognition as the leading value added resource in accessory footwear. As Dan said we are confident about our business and we have continued the 2009 fiscal year in a position of financial strength. We have a solid business plan that focuses on growth and long-term profitability. We have proven over the past few years that the combination of our flexible business model and the multiple channel distribution strategy gives us tremendous agility in the market place.

As a small company with limited analyst coverage, we know it is important to provide the investment community with a credible and reasonable view of where we think the business is going. We have worked very hard over the past three years to cultivate a reputation for credibility. We are however not accustomed to dealing with the kind of short-term economic volatility we are currently seeing influencing the market place. Consequently, even though we will continue to be profitable in 2009 we have opted to postpone our offering of guidance for the full 2009 fiscal year until after the Christmas selling season during which we still do a significant portion of our annual business.

We do want to share with you our current view of 2009 business. First we are beginning to experience fall order delays and reductions as retailers attempt to limit their days of on-hand inventory as a means of minimizing their exposure. As a result we expect to experience some noteworthy shifts in our seasonal sales patterns beginning with the first quarter of this year. We are also dealing with a reduction in retail stores due to downsizing and bankruptcies in the mid-tier department store channel. As a result we believe that our sales for fiscal 2009 will be relatively flat. Over the past year we have experienced inflationary pressures from our suppliers. We expect some erosion of our gross profit margins in fiscal 2009. We believe that this is temporary for the fall season and we expect to see gross profit as a percent of sales return to the neighborhood of 40% in fiscal 2010 and beyond.

I want to again stress that we are confident in our business, our plans and the adaptability of our model to the challenging economic times. We view the current economic difficulties as short-term bumps in the road. We plan to continue spending this year in the tools, training and people necessary for long-term success. We plan to continue our pursuit of a category appropriate acquisition that can positively impact revenue and earnings in a meaningful way.

Now operator we’re ready to begin our calls with questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Heather Boxman.

Heather Boxman

The insurance gain you had in the quarter, can you tell us what that was on an after-tax per share basis? And I know it offsets to some extent a sales loss in the quarter, but does it offset expenses in the quarter as well?

Greg A. Tunney

Before I have Dan and Jose address that, one thing we want everybody to understand is that as a result of the tornado we definitely lost sales that were out there for our fourth quarter. There were sales that were on the books that were ready to ship out the door and there were loss of sales, so part of the insurance adjustment actually addresses part of that. So Dan why don’t you get into the earnings.

Daniel D. Viren

The recovery related specifically to the wholesale price of that inventory and on a per share basis after taxes it’s roughly about $0.08 a share would have been the impact and we are continuing with the insurance claim that is not fully settled. The portion that is settled relates specifically to that inventory component. But we actually lease the building that we’re in currently and as part of that lease obligation we have an obligation to restore that building to its original condition. So that portion of the claim continues. We’re also covered for any type of continuing expenses, and again that portion of the claim has not been totally settled yet. So this particular piece relates specifically to the inventory and as Greg indicated that in fact we had orders on the books and shipments that were ready to go out the door when this loss occurred. So that recovery covers part of that.

Heather Boxman

So net net the expenses and everything and the losses associated with the tornado, the insurance recovery that you received in Q4 is some of what you expect to get to make you whole but it’s not all of it yet?

Daniel D. Viren

That’s correct. It continues. We were actually fairly pleased. We closed that portion of the claim I think in 83 days which was a miracle and I think it’s a testament to the strong financial accounting systems that we have in place in order to demonstrate to the insurance carrier that the values that we were presenting were valid.

Heather Boxman

SG&A I remember originally the guidance for this year was in the range of about $33 million even without the recovery benefit. Now it was significantly lower than that. Why is that the case and also looking into 09 what should we be looking for in terms of SG&A spend?

Daniel D. Viren

I would tell you that as we entered the fall Christmas selling season this past year, we could see that the economic conditions were changing and as a consequence of that in fiscal 2008 internally we began to take steps and actions to actually reduce our expenses in order to bring in the profitability that we were projecting to the street. We have continued with those initiatives and I would suggest that in fiscal 2009 the selling, general and administrative expenses as a percentage of sales will remain relatively flat.

Heather Boxman

That’s good to hear. That’s obviously excluding the noise with this insurance recovery in Q4?

Daniel D. Viren

Yes, that’s correct.

Greg A. Tunney

I think one thing that also helps you understand a little bit is some of the variability in our model. And that as we started to see last year looking out on the horizon that spring was going to be tough based on what we saw in the economy with changes in oil prices and some other things going on, we were able to have that flexibility to ratchet down the costs for the second half of the year and those are some of the results you saw there. So I think it really talks about the flexibility of this model in regard to our business.

Heather Boxman

The tax rate, you guys are obviously still probably trying to settle into one here but what kind of tax rate should we expect going forward?

Daniel D. Viren

I think normalized tax rate going forward is in the neighborhood of 37%.

Heather Boxman

Getting to talk a little bit about some of the things you called out in terms of the challenging environment we’re facing, I don’t know if you would be willing to say it, but how much of the business was some of the guys like Boscov’s and Mervyns?

Daniel D. Viren

Our business is a percent in those different channels. I can’t give you the exact breakdown of those two stores but when you break down our business, and we’re doing about 40% of our business in the mass business and we’re doing a little less than 30% in the mid-tier business, the Boscov’s, the Mervyns, those folks are all part of that Heather. So it’s not a significant portion of it but it does represent an important part of our business. We continue to be concerned about that channel of distribution going forward.

Heather Boxman

Is there any receivable risk there? How much was that at the end of the year?

Daniel D. Viren

No. Basically because again we’ve done an excellent job of monitoring the credit situation with these accounts and so consequently our exposure for the three bankruptcies that you heard about, Linens & Things, Mervyns and Boscov’s, our exposure was very limited and we did not have much outstanding there. And again we look and monitor when they in fact get their VIP financing and again we’ll continue to monitor how much we’ll ship based on what’s happening at those accounts; not only those accounts but all accounts. So we have very little exposure.

Heather Boxman

With regard to the inflationary pressures coming out of China, we’ve heard across the board anywhere from 5% to 15% at the high end, prices are going up. I was wondering where you guys fall along that spectrum and what you’re expectations are in terms of passing that along?

Greg A. Tunney

Our range that we saw out there is we saw a range really between about 8% to 10% that was hitting our specific category that we were starting to track early. When it all got said and done it probably tracked probably closer to 12%. I think we were able to take a portion of that and pass it along but because of the dynamics of it, it was a little bit more of a challenge than we thought and that’s why we were making the comments on the gross margin for this fall. I will tell you the good news is we’re starting to see that settle in now. We’re starting to see if flatten out going forward. So as we start to look at our spring business and we start to look at 2010, which believe it or not in about 120 days we’ll start placing that product, we are seeing a flattening out of the market and some things are starting to get back in line. So we’re pretty optimistic that we’ll be able to get back on track for that 40% as we go into 2010.

Heather Boxman

With regard to the inventories at the end of the year, obviously down significantly. I know you guys don’t speak to backlog but how much of that is a function of expecting lower order levels for holiday 08?

Greg A. Tunney

I don’t really think it plays into that at all to be honest with you. It’s just again how we’ve managed our inventories. Our intent was to manage down to actually reduce any type of potential exposure in that area. As we indicated our closeouts are at the lowest levels of history and so that inventory is good current inventory that relates specifically to our replenishment business and current spring business that we have had at the end of the fiscal year. So it really has nothing to do with the fall business.

Heather Boxman

One last housekeeping question. Cap ex and depreciation and amortization from fiscal 2008?

Greg A. Tunney

Jose, do you have that number? What we’ll do Heather is we’ll pull that number up. We have it in the book here.

Daniel D. Viren

Our cap ex spending is very minimal. In the neighborhood of about $1.2 million or in that range.

Jose G. Ibarra

$640,000 in depreciation and amortization.

Heather Boxman

And the plans for that for 09?

Jose G. Ibarra

The same. [Inaudible] stable from 08 to 09.

Operator

Our next question comes from Doug Ruth.

Doug Ruth

The first thing I would like to do is offer my congratulations on a wonderful fiscal 2008. Could you tell us some of what you think is going to happen with the Wal-Mart business in fiscal 2009?

Greg A. Tunney

We’ve been tracking all of our channels of distribution and when we look at Wal-Mart right now, Wal-Mart has continued to actually hold and grow a little bit from last year. In fact they’re kind of leading the pack out there right now. However a lot of that growth is coming from the food side of the business that’s driving that. And how much benefit we’re going to get over on the softer side is yet to be seen. We see that business being stable and hopefully growing a little bit but right now they’re kind of the leaders of the pack as far as growth out there or guidance going into the holiday season.

Doug Ruth

How did they respond to you providing the additional replenishment slippers? Were they satisfied with the way that program ended up?

Greg A. Tunney

Yes. I will tell you the execution of it was really done very well. When you’re doing a transition of taking two or three different vendors and giving it to one, there was a lot of work done behind the scenes and they actually gave us really some great credit for how smooth the transition was. Right now we’re really going to find out going into the Christmas season how well that transition’s going to pay off for us. And as we start to see things accelerate going into the holiday season, we’ll see the results of that hopefully in about 108 days.

Doug Ruth

Can you expand some on what you’re looking for with like the Superga’s and the Terrasoles for 2009?

Greg A. Tunney

I will tell you on both of those, this last year the company made some small bets of placing those and getting those started. It was really a year of building a foundation and getting them situated in the market place. Terrasoles for the year got into about 310 accounts. It represented about 498 doors. And Superga opened up, because it was only half the year, about 144 accounts and represented about 239 doors. So when you look at those two initiatives, it was really a year of investment on our behalf; it was a year of learning and understanding. We learned a lot. You’ve got to realize with Terrasoles we were completely in a new market place with new customers we hadn’t dealt with. So I think to have those two have the foundation that they have now going in for 2009, we expect both of them to have some pretty nice growth curves for the corporation in 2009.

Doug Ruth

Were there any specific vendors or channels that were especially successful?

Greg A. Tunney

With Terrasoles I will tell you that what we did first of all because of where that competes, they were very successful in Orvis, they were successful in L.L. Bean, and the rest of their retailers really represent key independent outdoor customers. So they don’t really get into if you will say a major out there. They really focus on a different channel of distribution. But that’s where the success story was for them.

In the case of Superga, it was a much more limited distribution strategy. The focus there was really in Nordstrom’s, Niemen’s, Boston Proper and Scoop. And probably the most important thing we learned about Superga is we felt we had a pretty strong women’s business that we could go after and the big surprise that we weren’t really prepared for and didn’t take advantage of and will next year is the children’s business. We really sold out in the children’s business. We took a small bet on that but it really sold out and we’re starting to see that momentum going into next year as far as order placement. But it’s a nice opportunity for us and something that we really didn’t expect.

Doug Ruth

What do you think about Superga in Canada for fiscal 2009?

Greg A. Tunney

We have a great partner that we have up there and he has done an outstanding job with our other brands and I think that as he gets going with Superga there, the Canadian market has a much bigger European influence than the US market does. And those customers especially in Montreal, in Quebec and some other areas definitely have exposure and know what that brand is in Superga. So we expect our growth rates there quite frankly to be a little bit more aggressive than they are here in the States.

Doug Ruth

That’s interesting. What can you tell us about Nautica and the NCAA College clog? How’s that been going?

Greg A. Tunney

First of all in Nautica, this fall season will be our first time with them and for the fall season we’re going to open up in about six different accounts in Nautica which represents about 400 doors for fall. And then for spring we’ll be in about seven accounts and that’ll represent about 600 doors. So there’s kind of a layering on effect that we’ll do with Nautica in the slippers for the fall season and then move into sandals with the Nautica brand for the spring season. So this is really kind of their maiden voyage but I think we’re going to have enough exposure in the market place to find out what the brand represents in these categories.

And then in the college footwear category, it’s a much smaller test. We’ll be in about 57 accounts that represent about 70 doors. They don’t represent any majors but it’s really a test to learn in that category of what we’re working with.

Doug Ruth

What about the possibility you spoke of earlier in earlier calls about licensing the Dearfoams brand outside of North America?

Greg A. Tunney

Our international expansion is something that we’re looking long term; that we think is an opportunity. With the success that we recently have had with our new model of international licensing in Canada, we want to continue to expand that out. And I think it’s something that as a corporation we’re going to be looking at over the next three to five years as far as when it would really start to benefit us. We’re just now starting to see the benefit in Canada and it’s something that we placed the way we did about two years ago. So typically things that we would do internationally now, you really get somebody signed up for this year; next year they get the product in; then the company really benefits the year after that. It’s really kind of a long-term approach that we think is definitely an upside for our corporation.

Doug Ruth

Can you tell us about what you’re seeing on the acquisition front?

Greg A. Tunney

We can tell you that the good news is as the market has dried up a little bit in cash in the equity markets, the good news is for strategics such as us it really kind of presents us as a higher visibility for those people that are interested in selling. So we think that the market as we go forward into 2009 will actually get a little bit more active for strategics such as us. And I think as the economy gets tougher and we go through a tough season like we are right now, that’s usually a time when you see people start to reconsider what they want to do long term and hopefully will present opportunities for us. What has been pretty slow for the last couple years for us and quite high multiples, we’re seeing those multiples go down across all markets, so we think the prices are a little bit more attractive for us and hopefully we’ll see more opportunities as we go into 2009.

Doug Ruth

Can you comment some about the switch of the stock from trading on the AMEX to the NASDAQ global select market? It seems like the trading volume has been declining. Anything you could offer would be helpful.

Greg A. Tunney

Well we were hoping you could help us Doug. We really sat down as a Board and as a management group probably 18 months ago and really looked at what we thought were some important things that we needed to do. We felt that by moving over to what the NASDAQ represented that we would see some higher trading volumes if you will from what we were seeing. Unfortunately that has not come to fruition and it’s pretty disappointing to us as far as what our expectations were going to be. We think that there are some reasons behind it but we’re still working on it. And this fall season now that we’ve got three straight years of significant earnings growth behind us as a company, we’ll be spending some time this year with the investment community. We think we have a pretty good story. We start in October with one of our key partners out there in the investment community that we will presenting at a conference and will continue that through the fall season of telling our story and hopefully getting some better visibility for the company.

Operator

Our next question comes from Ethan Star.

Ethan Star

Congratulations on a very nice year. I’m very impressed especially with the inventory management. My first question is, what was operating cash flow for the year?

Jose G. Ibarra

$8.7 million.

Ethan Star

And how much cash was paid for taxes, if any?

Jose G. Ibarra

None in 08 and we won’t until sometime in fiscal 2010.

Ethan Star

Regarding Superga and Terrasoles, do you feel you’re on track with your growth targets for how things are going for next spring?

Greg A. Tunney

For the plans that we’ve put in place for 2009, which we’re now two months into that, we feel that we are on target for those plans that we put in place. And we think for 09, 10, 11 these are things that we invested in, put the foundation in and that they need to provide significant growth opportunities for our company. This year those two initiatives will both represent double-digit increases as a percent from what they were last year. Even though they’re small in nature, those are the type of growth rates that we’re going to have to have out of those new initiatives as we go forward.

Ethan Star

You already spoke to the retail sell through of the children’s Superga. How are the men’s and women’s Superga’s doing at retail?

Greg A. Tunney

The children’s is as I told you before absolutely outstanding. If we were going to give it a grade I’d say an A+. For what Superga has done at retail I would tell you that we’d probably give that a score of an A. And on the men’s side there was some European styling to some of those products that didn’t translate into all the markets especially as you started to get into more of the mid-level of the country. When you’re on both coasts, the fashion direction and the styling really resonated pretty well on both coastlines but as it hit the middle of the country it didn’t resonate as well. Those are some learning things that you do as you launch a brand as you learn about it and those are things that we’ll be making corrections going forward. All of them resonated very well on the more urban and coastal worlds, and we’ve got some work to do in the middle of the country.

Ethan Star

How about retail sell-through of Terrasoles?

Greg A. Tunney

We just had a presentation to our Board last week on this and with the exception of accounts that don’t have the proper credit that we’re not comfortable shipping to, all of the accounts that we had in place last year are coming back this year and reordering and doing the program again. So I think that really kind of gives you a feel about how retailers felt about it. Last year they tested it and got a feel for it, and we had all of them come back into the fold this year without exception. And instead of saying “Well we thought the sell-through was good,” I think the ability to keep accounts going forward is a pretty good indication of how they produced last year at retail.

Ethan Star

How are sales through the various websites - Dearfoams, Superga, Terrasoles - going?

Greg A. Tunney

I will tell you that if you look at this year for us we had some new updates on our websites and some new introductions to them for the spring season. I will tell you overall that across the country, whether it’s our own websites or websites of customers that we deal with, the Internet business is doing extremely well out there. For the first six months of the year they had double-digit increases in those channels of distribution. There’s lots of talk of why that happened; whether people didn’t want to pay to drive to the store or anything else, but that business whether it was our own or other people that we deal with such as Zappos or ShoeBuy or whoever it may be continued to grow at a pretty good clip. And when I say double digits, it was close to 20% growth rates and the margins in that business continue to hold and not have some of the gross margin deterioration that you’re seeing in other channels of distribution. So it’s healthy right now.

Ethan Star

What’s happening in the DF Sport line?

Greg A. Tunney

The DF Sport line continues. We’ve really focused that brand into the club business. You’ll start to see that DF Sport brand coming into the Sam’s business for late holiday into spring and you’ll start to see that program continuing to ramp up in that category.

Ethan Star

You spoke briefly about the Canadian distribution arrangement. Could you expand on that a little bit more? How are the Dearfoams doing up there?

Greg A. Tunney

They’re doing fine. The arrangement that we have there versus what we had before is much more of a distribution strategy whereas before it was more of a licensing strategy. We like the way it’s set up now in that the way the inventory goes and the ownership of it is the right model for us. I will tell you that our business there this last year grew at significant double-digit increases for us. And probably the biggest difference that you’re seeing in that model is they are relying on the direction and the product development that we are doing so that the brand is consistent on both sides of the border, whereas the way it was modeled before they were just doing whatever product they felt was necessary for that market and slapping the Dearfoams label on it. So it’s a much more consistent brand message on both sides of the border.

Ethan Star

How about the licensing arrangement with GBR in Great Britain?

Greg A. Tunney

With that one we have stopped that and we are actually in the process of getting a new partner really set up under the format that we did with Canada and really getting into a better distribution model versus the model we had with GBR.

Ethan Star

When do you anticipate - within the next year you might find a new partner?

Greg A. Tunney

I would tell you that you won’t see the product in there for 2009. You’ll see it in there for 2010. That would be our best estimate at this time.

Operator

Our next question comes from Robert Six.

Robert Six

I hear you talking and as usual I have nothing at all wrong with the business of R.G. Barry. I think the business end of R.G. Barry if not perfect is so near to it that I couldn’t possibly tell you how to make it any better.

Greg A. Tunney

Thank you Robert.

Robert Six

I do have a problem however with the equity end of R.G. Barry. And in a follow up to Doug Ruth’s call, you mentioned the fact that you were disappointed in the way things are going. Some of the problems you’re going to address with your October plan to publicize the company and tell the R.G. Barry story and I think that’s a great idea. However, I think part of our problem deals back to the fact that what I would call the valuable cash cow is the business end of R.G. Barry while making money hand over fist is not translating itself into value for the shareholder. And that brings us to the Board. The Board has decided that the proper thing to do with the money is to stick it under a rock and hide it to protect the shareholders. What we’ve really succeeded in doing by that strategy is bringing our stock down from $13 in change to $7 in change in a year and a half. It may be a great idea to hold on to money in times that could be bad, but any time the Board of Directors chooses not to reinvest in its own stock it is sending a clear message to the general buying public that this stock is something we don’t want to invest in. I think that’s what’s been happening to us for a year and a half. I’ve watched our volume go from $20,000 a day down to $2,000 a day despite the fact you made a very intelligent move in moving to the NASDAQ market.

Secondly, I’ve been in the business of investing for quite a while and I’ve made a lot more money investing in stocks than I ever did working for a living. And I’ve never made a dime by being a shareholder in an acquisitor. I’ve always made my money by being a shareholder in the company like R.G. Barry that’s a valuable cash cow that is wanted by others in the world, and they have paid me very handsomely by buying my stock and in some cases giving me stock that I still own today in companies that are still growing. I think somewhere in this discussion lie the keys in the success of R.G. Barry’s equity price.

I’d like to hear your comments and I’d also like to know whether or not you’ve ever considered the idea of taking R.G. Barry private or finding a suitable merger partner for R.G. Barry.

Greg A. Tunney

Well Robert, as always you’re point of view was well spoken and well presented. I would tell you first of all just to let you know that it’s not only the Board’s opinion of the direction that we’ve taken as a company but it’s also management’s opinion of what we’ve decided to do in regard to reinvesting or buying back shares as a company. We feel because of the liquidity of our stock that yes we could go back and buy it but we don’t think it helps us. We think it actually exacerbates the problem we have with our liquidity. So from a strategic standpoint we decided not to do that. But I want to make it clear that it’s not only the Board’s decision on this but it’s also management’s opinion that it is the right thing to do.

I think over the long term Robert that the strategies we’re putting together for long-term growth will pay off to our shareholders in the long term. I think in the short period of time and the quote that you used when our stock price was at $12.00 or $13.00, that was a very short time ago and some very strong economic headwinds hit our sector. Our stock has held up as well as anyone in our sector has so I think even though we may not like the price today, I think we’ve done the right things to make sure that that has been validated as price. So I would tell you long term we feel very confident in our strategy. We’re not going to get caught up in just the short-term issues of where the stock is. And I think that as we continue down this growth path that we have, it will pay off for us.

That’s not to say we’re going to stick our head in the sand and if we don’t see it maturing the way that we should that we won’t make changes to that, but we are so in the beginning stages of this, of really laying that foundation. I mean you’re looking at new initiatives that have been in the market place six months to 12 months down the path and for our type of industry, typically you’re looking at things at a three to five year horizon. That’s definitely how we run our business. We’re not running it by quarter-to-quarter and we think that long term it will pay off for our shareholders and we’ll all benefit from that.

I don’t want you to think that we haven’t thought about the things you’ve talked about and I think that we’ll continue to readdress those as needed as a Board and as a management group and we’ll do what we think is right for the company. We appreciate your thoughts and they’re definitely things that we’re thinking of as a company as well.

Robert Six

I understand that. Are you saying that no thought at all is being given to the possibility of going private or merging the company in some way?

Greg A. Tunney

Oh I would tell you that those are all opportunities that we have discussed at one time or another. I think that what we’re trying to do as far as our growth strategies, and I want to make sure I’m clear on this Robert, we wouldn’t hold back on those regardless. I think if the right opportunity came and it was the right thing for the shareholders in the business, we would absolutely entertain them and we’ll continue to do so. But it doesn’t hold us back from what we’re currently pursuing as a company.

Robert Six

Thank you for your answer. As I say, I still think we need to look at how people perceive us when we don’t put back say $10 million or $8 million of our own money to buy back a million shares, I understand that it doesn’t help our liquidity because we are a rather small company with only 10.4 million shares, but the message that is sent by reinvesting our own money in our own company can’t be overstated. It is one of the things that drives a company forward. We’ve been missing that for quite a while and I’ve been looking for it for quite a while I might add. Thanks very much for your assistance Greg.

Operator

Our next question comes from Ethan Star.

Ethan Star

In response to the last question, I want to emphasize that I’m perfectly happy with where things are going and I don’t see any need for a buy-back at this time and happy having the cash reinvested in future growth.

Greg A. Tunney

We appreciate your comments Ethan. I think some of the comments that Robert brought up were ones that we’ve definitely considered and gotten a lot of expert advice on. And we think right now the direction that we’ve taken and the position we’ve taken are the correct ones so we’ll continue down that path.

Operator

Our next question comes from Paul Johnson.

Paul Johnson

Just to follow up on Robert and Ethan’s comments. I agree with Robert in that the operations have been absolutely terrific in an extremely difficult retail environment, so we’re extremely supportive of that. I guess we’re in the school of thought that the stock market will figure it out if you continue to execute the stock will react in that sense, I guess I’m in Ethan’s camp and say keep doing what you’re doing and keep the cash on the balance sheet and don’t try to do anything cute with it.

Greg A. Tunney

Thank you Paul.

Operator

You have no further questions at this time.

Greg A. Tunney

Thank you. In closing I want to reiterate that fiscal 2008 was an excellent year for us and while fiscal 2009 will be very challenging, we enter it in a position of strength. Our business is financially healthy, our team is strong, our relationships with our customers have never been better. We are adding new businesses and carefully investing in our future. We continue to focus on our mission and we expect to win. Thank you for your continuing interest in our company and your participation in today’s call. We hope you will join us in November when we report on our first quarter of our 2009 fiscal year.

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Source: R.G. Barry Corporation F4Q08 (Qtr End 06/28/08) Earnings Call Transcript

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