Gaia Inc (GAIA) 2003 Q3 法說會逐字稿

Welcome to the Gaiam third-quarter earnings release conference. All lines will be in listen-only mode until the formal question-and-answer session. At that time, instructions will be given. At the request of Gaiam, today's conference is being recorded. If you have any objections, you may disconnect at this time. I would like to introduce Mr. Jirka Rysavy, Chairman and Chief Executive Officer of Gaiam; Ms. Lynn Powers, President; and Ms. Janet Mathews, Chief Financial Officer. Ms. Mathews, you may begin.

Thank you. Good afternoon everyone and welcome to Gaiam Inc.'s third-quarter 2003 earnings conference call. First for the legalities. The following constitutes a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, the matters discussed in this call are forward-looking statements that involve risks and uncertainties, including, but not limited to, general business conditions, the integration of acquisitions, the timely development of new businesses, the impact of competition, and other risks detailed from time to time in the Company's SEC reports. The Company doesn't undertake any obligation to update forward-looking statements. I would now like to turn the call over to Jirka Rysavy, Chairman and Chief Executive Officer.

Welcome to our quarterly update. We are going to cover the results for the third quarter, which ended on September 30. And, as we expected, it was still a difficult quarter, but finally we clearly saw some improving trends. For the quarter, we reported 23.5 million revenues, which was 9 percent decline from 25.8 million on the same quarter last year. The revenue drop was still caused mainly by the decline in our sales to retail channels. We had a loss of a penny or 200,000 which compared to 1.4 million, or 10 cents income, in 2002. The slight slippage in revenue (ph) of 4 percent to our plan to improve revenue by 20 percent from the second quarter, as well as the penny in earnings, was due to one order that was (indiscernible) was actually delayed and shipped in the fourth quarter. But we were still disappointed with our results, even though there is clearly some positive trends, especially in the month of September.

For nine months, we have generated 1.6 million cash contribution from the operation, compared to cash use of 6 million in the nine months of the last year. The negative internal growth rate we experienced during the year continues to subside and was 18 percent -- 18 percent for the full quarter, but it's continued to improve rapidly. And we expect that internal growth rate become neutral in the month of December and become positive 5 to 10 percent in the first quarter and reach double digits during the next year.

In October, we finished the system consolidation, in which the third party distribution to our retailers was transferred to our own distribution facility in Ohio. We plan to move support for all our remaining accounts to a higher facility by the end of the year, which as we previously said, is expected to bring significant savings. We expect revenue in the fourth quarter for the first time in this year to reach or maybe even slightly exceed the last year revenues of 37.3. The bottom line will return to profitability and we do believe that all the losses we experienced this year are finally behind us. So now, Janet will give you some more numbers and the guidance, and then Lynn will go over the business overview.

Thank you, Jirka. Now let me provide some additional details. For the third quarter, sales were 23.5 million, representing a decline of 9 percent from prior-year sales of 25.8 million. The decrease in revenue was primarily due to lower sales in our business segment, where we continue to experience weakness in sales made into retail accounts through outside distributors, mall-based specialty stores and sporting goods outlets. Gross margin of 52.1 percent for the third quarter of 2003 declined from 58.3 percent in the previous year. This is primarily attributable to increased sales contribution from our lower margin divisions and from margin contraction in our retailer channel due to a product shift to accessories.

Operating expenses decreased to 12.3 million for the third quarter of 2003 as compared to 12.8 million during the comparable period in 2002. As a percentage of sales, operating expenses were 52 percent in the third quarter of 2003 compared to 50 percent in 2002, the increase resulting from a lower sales base. Operating margin was a positive 1/10 of 1 percent compared to a positive 8.7 percent in the prior year. During the third quarter, the net loss was 201,000, or 1 cent per share, compared to a net profit of 1.4 million, or 10 cents per share, in 2002.

For the nine months ended September 30, 2003, sales decreased to 67.3 million compared to 74.1 million during the same period in 2002. Operating margin was a -1.4 million in 2003 compared to a positive 5.1 million in 2002. For the nine-month period in 2003, the net loss was 1.3 million, or 9 cents per share, compared to net income of 3.1 million, or 22 cents per share, in 2002. At September 30, 2003, we had 7.9 million in cash, no debt and an unused credit line of $15 million. Cash generated by operations for the nine months ended September 30, 2003 was 1.6 million compared to a use of funds in 2002 of $6 million.

In the fourth quarter, we expect revenues to reach or slightly exceed 2002 revenues of 37.3 million. The bottom line will return to profitability, but it isn't expected to be sufficient to offset the current year-to-date earnings deficit. For 2004, we expect our internal growth rate to return to a positive 5 to 10 percent in the first quarter and reach double-digit rates during the year. Therefore, we are comfortable with analyst estimates for 2004 as far as revenue and EPS goes. Trade accounts receivable totaled 15.9 million at September 30, 2003. Days sales outstanding improved to 57 days for the quarter, down from 68 days during the third quarter of 2002.

Inventory at the end of the third quarter of 2003 totaled $16.8 million, an increase of $2 million over the 14.8 million in inventory at December 31, 2002. 1.3 million of this increase results from the consolidation of Leisure Systems International, a UK-based distributor of wellness products, in which we acquired a 50.1 percent interest in January, 2003, while the balance results from front loading of inventory to meet the holiday seasonal demand. Inventory turns of three times remain constant as compared to the prior-year period. Before turning it over to Lynn, I would like to announce our schedule for the next earnings call. The fourth-quarter earnings and full year 2003 results will be announced on Thursday, February 26, 2004 at 4:30 PM Eastern time or 2:30 PM Mountain time. Now to Lynn for a business overview.

Thanks, Janet. The business segment has continued to be a challenge this year, with sales to retailers behind last year by approximately 37 percent year-to-date. As we've discussed on prior calls, we grew this business segment from 11 million to 60 million in just four years. Comps for the first three quarters of last year were 35 percent. In 2003, this segment has suffered from a general decline in retail sales, as well as a drop in volume in several key accounts. However, as we move closer to the 2003 holiday season, we are experiencing increased sell-throughs on existing products, as well as interest in new products from our retail customers.

Our business segment comps for third quarter remain down from 2002 by 4.6 million. Our major decline in comps were in three areas. Our distributor channel dropped by $3.8 million. Approximately 1.7 million is attributable to our decision to take Bed, Bath and Beyond direct, as our distributor for this account moved through his current inventory levels during this quarter. Over a million appears to be a timing difference in orders from the clubs. We anticipated receiving the Sam's Club fitness pallet order in third Q, as has happened in previous years. However, this year, they requested a fourth Q ship, as many retailers are increasing their just-in-time inventory practices.

We continued to see a significant decline -- over 800,000 -- in specialty and department store business or mall-based retailers. This trend is consistent with the overall retail environment. Sales for the Discovery Store were down over 600,000 in third quarter. We do expect this decline to continue through fourth quarter. In addition, we experienced over 1.2 million decline in sales and certain product categories. In the third quarter of 2002, we had a substantial sale of discontinued inventory to a discount retailer that contributed over $1 million decline in comps for this year. We are also experiencing a decline in the audio product line that we previously marketed under a distribution agreement for a third party. This line accounted for approximately 230,000 decline in sales in third Q. We anticipate this business to remain soft. This line does not contribute to our profitability, and the distribution agreement currently expires at the end of the year.

Our sporting good channel comps are down 37 percent, or 350,000 in third Q. The majority of this decrease can be attributed to a decline in the business with Sports Authority. As we've discussed in the prior quarter, this account has not placed orders to expectations since its announced merger with Gart Sports. In addition, we experienced negative comps due to some timing differences of holiday orders by a couple of other key sporting good retailers. We have seen expansion of our top sporting goods retailers. Dick's was up 31 percent and Sport Chalet up 12 percent in third Q. We are currently expanding our stores and store presentations in anticipation of the holiday season in Dick's, Galyan's and Sport Chalet. results of these resets should be visible in the fourth quarter.

Overall, our mass merchant channel was up 2 percent for the quarter and is up 7 percent for the year. This channel is dominated by Target, where our business is up 3 percent for the year on top of a load-in last year. Target is pleased with our business and our comps within this year. We are performing at 15 percent comps in retail sales for them through September, which is significantly better than their department average. We have several initiatives in place for the fourth quarter, including three advertisements in their weekly circular and the addition of Kids' Fitness Fun Kits into their mix. We are continuing to expand our Target relationship with new items, categories and increased shelf space anticipated for 2004.

Also included in the mass merchants is Wal-Mart, where the selection is limited to media and our business is up over 100 percent for the quarter and year-to-date. The bookstore channel had a 400 percent increase due to the load-in for Barnes & Noble of 1.6 million. Outside of Barnes & Noble, we experienced strong 89 percent positive comps over 2002. Borders increased the Gaiam presence with the addition of Store's in-store fixture presentations in over 50 locations. We believe this channel has lots of opportunity and look forward to monitoring the results of the Barnes & Noble placement. This channel should also benefit from our expansion into publishing and our multimedia kits available for fourth quarter.

We are also experiencing strong growth with our Canadian distributor, where business is up 50 percent year-to-date and 65 percent in third quarter. We worked with our accounts this year to do stock leveling, resetting their floors and getting our new products out to market. We believe we will be complete with this project by the start of the holiday season. Our new product has started to reorder; our switch to DVD is beginning to improve our media business; and our sales reorganization by channel is starting to pay off.

Third quarter 2003 saw three significant launches into retail stores. First was the initial placement of Gaiam Kids into Target stores. This launch contributed approximately 320,000 to the third quarter. We are excited about this launch, as the kids' line represents an entirely new category for Gaiam. With concern for our children's health being a focus of media attention, Gaiam's goal with the Kids line is to incorporate fitness into the lives of young children through activities and games. Distribution of this line in the U.S. is exclusive to Target stores until March, 2004.

Second, based on the successful results from our 14-store test, we completed a store-within-store fixture rollout into all Barnes & Noble booksellers. Barnes & Noble is an exciting new account for us and will solidify our position in the bookseller channel. Third was the test launch of the Optimum Wellness Healing Arts brand into 62 King Sooper Stores, a division of Kroger grocery. The concept behind Optimum Wellness is to provide information and products that combine nutrition with mind-body fitness programs. The line was developed to be price-competitive and have mass market appeal. The Healing Arts brand will also be tested in 40 Safeway stores in fourth quarter, expanding to 200 stores in March, which puts us in two of the top grocery chains in the country with tests. Expansion into the grocery channel is important to Gaiam, as it represents an untapped market of consumers.

Our proprietary products continue to represent over 60 percent of our business. In addition to the launch of the Optimum Wellness Healing Arts line, Gaiam Kids and our new upscale Gaiam Lifestyle Collection, we continue to add new product to our existing Gaiam brand to increase revenues through new proprietary products. As stated in previous conference calls in 2002, in our Direct-to-Consumer business segment, we dropped circulation by 14 percent in order to focus on the Business segment, which experienced 29 percent positive comps in 2002. Now we are refocusing on our direct business. We have increased circulation for the holiday season this year, revised the format for our Living Arts catalog that will lower costs and bring efficiencies, and are continuing to add proprietary products, including more organic cotton bedding and clothing to increase margins. Whereas fall has traditionally been a weak quarter for the Direct business, we had success with the test launch of our first edition of the Gaiam annual sale catalog. The response to this new catalog and related e-mailed campaigns strongly exceeded our expectation and will provide new revenue opportunities in the future for what is typically a difficult quarter in Direct. During third Q, we instituted several new marketing initiatives in our Direct business to connect with our customers and provide even stronger reasons to buy. We look forward to monitoring the results of these initiatives in the upcoming months. Our operating statistics in Direct remain strong, with a fill rate of 92 percent and an average order size over $100.

The Renewable Energy division saw considerable growth this quarter with 20 percent comps. We expanded the residential solar program to Southern California in third quarter and achieved great results. As noted previously, this program allows for strong branding opportunities, as well as new revenue streams. We completed the implementation of a new warehouse management system during third quarter. This system is allowing us to move all distribution to our Cincinnati facility, achieving third-party fulfillment cost savings and internal efficiencies. We will realize the full cost savings benefits in first quarter of 2004.

As our negative comps are now beginning to subside, we remain focused on our sales and product strategies and maintaining our leadership position in mind-body health products. We currently have Gaiam branded products in over 32,000 retail doors and are continuing to expand our stores and store presence in premier retailers such as Barnes & Noble. We are launching our Healing Arts brand in grocery, with tests in Kroger and Safeway, and we are committed to the expense reductions in line with expectations of 2.5 to 3.5 million on an annual basis, which should be fully realized in 2004. I'd like to now open the call to questions.

(OPERATOR INSTRUCTIONS) Carole Buyers.

I just wanted to start off with some housekeeping questions. First on the revenue, can you give the exact breakdown of retail and direct and then maybe by margin as well, retail and direct?

Direct, Carol, was 11,579,000 revenue. B to B was 11,954,000. Contribution, direct was a positive 195,000, and B to B was a loss of 179,000 for the quarter.

And then, Lynn, these are probably more appropriate for you, just on some specific accounts. On Target, you talked about the children's launch. When will your full launch be rolled out?

They're putting them in the stores right now, Carole. I think you'll find them in most of the local stores as of this week.

And then the launch of Gaiam Organics, is that still slated in the department stores or are you going to keep that for the direct business?

No, that will go to the department stores in first quarter of 2004.

Okay. And then, how big is the renewable energy business for you on a percentage of sales?

Are you talking about the entire division, Carole, or just the --

Yes.

It is about 7 percent.

And finally, are you still shipping product to Whole Foods?

Yes, we are.

Just under 10 percent, Carol.

Renewable energy?

For the Q -- they had a very good quarter.

Okay.

Eileen Savantis (ph).

You had previously mentioned rolling out a clothing line to Bloomingdale's. I wanted to find out, is this higher end market profitable for Gaiam, or is it just more prestige than profits in the accounts like Bloomingdale's?

Actually, Bloomingdale's will be for first quarter of 2004, and we anticipate certainly that it will be profitable.

Great. And then clothing as a whole, is it profitable, and what percentage would it contribute to overall profits?

At this point in time, clothing is only carried in our direct business, and the first time it will be launched really in a major way out to retailers is in fourth quarter. We have some small launches right now with some sporting goods stores, but it is not a major part of our business yet.

And in the last quarter you mentioned a soft launch in Bloomingdale's for the clothing line.

Soft goods, I believe.

I'm sorry.

We announced a soft goods launch.

Oh, okay. So it wasn't particularly clothing, then?

Clothing and bedding.

Okay. And you said there are a few other stores, like maybe four other stores. What were the other stores, and how did it go in those?

Again, this is all for first quarter, and the stores that have expressed interest and are planning to test our soft goods line right now are Lord & Taylor, Bloomingdale's and Great Indoors.

And then how well are the Gaiam products doing in Macy's?

I don't actually have selling for you by account. But Macy's is a very, very small portion of our business.

And you had mentioned that the Healing Arts line was going well in the Kroger supermarket chain?

It just launched about three weeks ago, and they are pleased with the results.

Good. So are you planning to expand in the supermarket chains -- are you planning to expand in this area?

As I stated earlier, we have a 40-store test with Safeway that will be shipped in December.

But that's not a Gaiam name.

The Healing Arts brand.

Okay, so that will be Healing Arts.

We treat Whole Foods as a specialty store. They get all the Gaiam products, but other supermarkets do not.

So you wouldn't necessarily be thinking of the Whole Foods as like a supermarket chain?

No, not at all. They're a specialty store.

They're lifestyle stores if you look at them and it's what they want to be and we also treat them obviously that way. So they have a full Gaiam present of proper line, which other grocers still have not.

I see. And you said that your catalog sales were doing good. What -- you had mentioned for the previous quarter that the circulation was increased substantially.

No, our circulation increase will be for fourth quarter.

Okay. So what was it previously?

You mean -- ?

Like the circulation?

About 16 (ph) million catalogs a year.

And when you're saying it's going to be increased substantially, like what would it be now -- so now it's 16 million. What do you think it will be?

It is really -- you make those decisions based on the results of a specific catalog, based on the operational sell-through and (indiscernible) rates, and mostly response rate from the different regions, so it's very hard to -- you kind of plan overall increase and we said we probably increased it somewhere -- what was it? Fourteen percent or something?

Overall on a year-on-year annual basis it would be about 14 percent.

But that by chance depends on the response rate. You really have to work with catalog on a month-to-month basis, depends how much the profitability. But catalog environment's much better than it was over the last two years, so it is definitely poised to expand because it was difficult since the dot-com area (indiscernible) and it's improving.

Okay. I think that's all the questions I have. Thank you very much. Bye-bye.

Eva Martin (ph).

Just wondering, who do you see as your main competitor in the industry and what are you doing to stay ahead of them?

We don't have specific competitors overall. There are different competitors in different lines, and Lynn probably could talk about that.

What kind of lines and what -- can you give me some more detail?

I'm sorry. I did not hear your last comment.

If you could just give me a few details as far as which type of line, who your competitors are in those particular lines.

In sporting goods, probably our largest competitor in the mind-body fitness area would be Reebok. And I think our competitive advantage is certainly our authenticity, using experts in the mind-body fitness field, and the strength of our media. They are not a player in the media area, where we have video and DVD launches that they are unable to keep up with this.

Okay. And as far as your yoga products, not in sporting goods stores and say BBB -- Bed, Bath and Beyond, or -- who would be your competition as far as your overall yoga products?

I think we have several small competitors, but no one certainly is the size of Gaiam.

Such as?

We have several small competitors there.

They are mainly like fitness gurus. They don't necessarily do yoga. The biggest competitors come from people who have a brand name like -- what would be some names there?

In yoga?

Yes.

Denise Austin for Pilates or Maris Windsor for Pilates. In yoga, I would say it is probably Hugger Mugger for mats. But again, small companies. There is no one large company in yoga.

We don't really face the main competitors in main retail chains from the per se competitors. The competition will be that some of the chains will decide to brand their own products.

Yes, some private-label.

And even in regards to your media, like your yoga videos and stuff?

Some people have a title here or there that is performing well, mostly driven by infomercials.

There's also the trend right now when yoga (indiscernible) getting because increasing still numbers, but the increase coming mostly from the kind of lower-end, so Yoga for Dummies, for example, would be very good title right now, but we have no intention to compete in that line because we want to stay authentic and true, so we would not launch any titles to compete with something like that.

So you are saying in your media, you don't really -- you don't really have main competition right now, just little small gurus here and there?

Basically. There's a lot of companies coming with few titles. There's no really big presence there. Some lines in certain chains, but nobody from the big guys, nobody from big chains either. So you kind of see independent titles, but there's no really company that will try to have a presence.

Okay. And then in regards to your new kids' line, I know it's new, but how is it doing so far?

It's really just got out in Target. I'll be able to talk about that on our next call.

Okay. And then, you said that it is exclusive to Target until March. And where do you plan on -- do you have plans for where else you're going to go after Target, after your exclusive date is up?

We hope to go into the kids' market as well as into the catalog market.

Like kids' market being which type of stores were you looking into?

Toys R Us, Kay Bee Toys, places like that.

Right, right. And then you have three kits at this time -- is that correct -- for Yoga Kids?

That's correct, three kits.

Do you plan on doing more?

Well, certainly we are going to be working on new ones, yes, particularly based on the kind of response we are getting from the media on how this is much-needed in the market.

Right. Like what kind of plans do you have to expand the kids' line?

I can't tell you a number of kits, but we are working on several. And obviously, we do testing before we launch them out to retail. So we will be testing them in our catalogs in the summer season.

And then in regards to Pilates products, what's the demand in the market for Pilates product? How has that been holding up?

Pilates is still our strongest category right now.

It's the strongest? Okay. So you are placing more emphasis on Pilates as opposed to yoga -- because that is the strongest point?

That's the strongest sell-through right now, yes.

What other new products are you planning on releasing in the fourth quarter?

We have a couple of launches in videos. We have two new kids video titles and DVD titles coming out.

Did you say kids?

Uh huh.

Okay.

We also have a couple of yoga titles, two new Pilates titles and some Target specific titles. And then we have a couple of new kits that we will be launching for first quarter.

Kits of yoga products?

Kits of more Pilates products.

Pilates products. Okay, well thank you very much for your time.

Carole Buyers.

Just two follow-up questions. I was wondering if you can give us your specific internal growth rate? And then second, on the gross margin, how attributable is the weakness in gross margin to the promotional environment versus the product mix?

First, internal growth rate I said for the quarter was 18 percent. It's -- I mean a -18. (multiple speakers) You want more than that?

No, no, that's all I wanted. And then what about the gross margin?

So we said it was -18 for full quarter, but it is improving. September was obviously my strongest month. And we expect internal growth to be neutral, means kind of zero in December, and about 5 to 10 percent in the first Q and then somewhere in double-digits in a year.

And can you comment specifically on September? What was internal growth for that month?

We actually didn't do that. We didn't do it; we just kind of -- I actually asked internal management to find out when we expect to break even. Because basically a trend was started pretty much because we changed our sales force -- we pretty much doubled our sales force, and it start to pay off. So it is kind of improving pretty dramatically right now. So we kind of tried to look at a trend line. But we don't do it on a monthly basis.

So Jirka, when you say zero percent by December is it by December.

In December -- in the month of December.

Got you. Okay.

And then gets positive in January.

Okay, and then my second question was related to the gross margin. How promotional was the environment versus mix and just attributable to weakness in margin.

Carol, gross margin was down 1 percentage point from the second quarter, and that was due largely to the Gaiam annual sale catalog -- it sold very well. But obviously, as the name implies, we take a lower margin on that. And we are still being impacted -- as we talked about earlier, the 10 percent revenue contribution by the Gaiam energy tech to the renewables division carries a much lower gross margin percentage than, say, your B to B sales. So as that percentage to the total business increases, gross profit is adversely impacted.

Okay, thanks.

Ben Harry (ph).

I wanted to ask you to quickly restate your strategy to grow profits in the next calendar year.

We kind of covered it in several last calls, but the main things -- Lynn, do you want to go over them?

Would you say you are more focused on increasing sales or increasing profits?

Our first -- obviously, the sales are the big issue. First on the sales, when we (indiscernible) talking about these comps and being negative, we had a huge growth, about 80 percent comps on 2002 in business-to-business. And we had a hard time even (indiscernible) products. So then, because a lot of the 80 percent comps came from what is called -- we called load-ins, when we ship first time to doors. So that obviously didn't repeat this year, so the comps appear much worse than they are. But we also was (indiscernible) on the retailer so we pretty much totally return into the positive comps are really key for us to drive the profits.

Is the new internal sales force commission only or do they have a base pay -- ?

There's a base, then commission and bonuses. But we had when we kind of started because it was part of business we just started four years ago, we really didn't have a sales force. So we kind of just grew into it, but there was so much demand we didn't have to really sell, so it was a really big makeover to get actually -- we have a new VP of Sales, we have whole structured differently. It is kind of a totally different way how we sell today than we sold nine months ago.

Did you see any results from implementing this new internal sales force in the third quarter or what were those results?

We definitely see results. It is going to have huge impact the month of September and that first couple months in third Q wasn't a huge impact because you have still a lot of people in training and learning the accounts, but specific results, Lynn, can you -- ?

As an example, in realigning our sales team by channel, where the person who has been with the longest -- the two people who have, one has the mass merchant channel, which you heard me talk about the results in that channel, where Wal-Mart is up over 100 percent and Target is -- that whole channel is up 7 percent. And then in our bookseller channel, where we just had -- were able to expand to all Barnes & Noble stores with store-within-store presence. So where we've had people with the Company for at least 9 to 12 months, we are really seeing results from that. And the newer ones, I certainly anticipate seeing results in fourth and first quarter from them.

How many sales people do you have and do you expect them to influence Gaiam's growth in the future? Or how you expect them, I should say.

We have about -- business to business about 10, and then we have our direct side on the phone -- what is it, 40 or 50?

About 40, yes.

But it is really focusing on certain accounts, which we didn't -- and the way how it (indiscernible) for us is managing how the accounts are approached with the results. Before, it was really kind of -- it was really small business when we bought it, about 4 million revenues which we built really quickly. And once you grow this at 40 or 80 percent a year, obviously, that's what kind of happened to us. We grew into it and we got really hit hard with what happened in the retail industry over last year. And so we have to kind of totally change everything we did, and probably (indiscernible) good it happened to us.

Last question, I guess. Could you restate -- give a little more clarity as whether the focus is more on mass merchants or smaller merchants, and do you see this area of smaller merchants becoming more profitable in the future or both -- either?

Most of the small merchants, the independents, are run through our distributor channel, and we focus our salespeople on certainly not just the mass merchants, but the larger merchants. I mean, we have salespeople who are focused on a by-channel basis -- our bookseller channel, our sporting goods channel, our mass merchant channel. So our internal sales force works on the larger accounts and independents go through distributors. But both are important to us.

As far as when they talk a larger one, we don't mean small independent with three stores -- it's what Lynn talked with distributors. We actually -- for us much more important is to sell into lifestyle stores and people have that tendency, which would be like Barnes & Noble, Whole Foods, Borders, than selling to (indiscernible) or to Wal-Mart. All we sell to Wal-Mart is our media titles right now. So we want a particular brand. And if you would sell to something like Wal-Mart, Sam's Club, it goes under Healing Arts name. We separated those strategies a year ago (ph) too.

Thank you for answering my questions.

Jon Fox.

Can you break the G&A expense out of your operating expense line for me?

I sure can. G&A for the quarter was 2 million 076. For the nine months it was 6,777,000.

Okay, and then what is your comfort with fourth-quarter EPS consensus estimate?

We said -- Janet said that we -- in fourth-quarter, the revenues should be ahead to slightly above last year, which was 37.3, which was good accomplishment for us because we have negative comparison so far. We expect to be profitable quarter. We said that the earnings for the quarter will not be enough to offset the current losses, which are 9 cents. So that basically say they would be for the quarter somewhere between -- I mean, we don't want to be more specific 9 to 8 cents, but obviously we don't necessarily -- we just basically saying we are going to focus on the fourth quarter. We want to finish the (indiscernible) system consolidation, get the music line direct and get launch our lines in the UK and complete the sales force makeover. And we also said that we comfortable with the next year estimates, what's out there and what analysts have out there.

Okay, thanks.

Dan Singer (ph).

I was wondering what percentage of your business came from both your largest account and your largest three accounts.

(indiscernible) this kind of question. (indiscernible)

I'm sorry. I didn't catch that.

We're trying to figure out. We don't look at it that way.

Would you say like 5 percent of your B to B business came from -- 10 percent came from your largest three accounts?

It will be probably between -- around --

Seven to 8 percent came from our largest account of our business, and so probably our largest three accounts together would probably be 15 to 20 percent -- about 15 percent.

Fifteen percent. It wouldn't be 20; the largest is 7.

Would you see any possible margin -- pressures on your margins given that or do you see any -- are you alarmed by having so much of your business to one account?

(multiple speakers) It's been there for a while, and I consider Target one of premier retailers, and our margins are fine with them.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Jon Fox.

It's Laura Richardson for Jon Fox. I apologize because I missed part of the call, but I am not sure I understood what you are trying to say about the fourth-quarter earnings, other than revenue -- that was pretty clear. It sounded like you were saying basically there would be 9 cents in operating charges. Is that a fair way of interpreting all that? For warehouse consolidation in everything?

Well, they didn't really say that. We are basically saying that from where we are right now, we see that fourth-quarter revenue, as we kind of said, that will be slightly -- ahead of slightly above the fourth Q and will be definitely profitable quarter. We kind of also say we won't -- that's won't be enough to offset the 9 cents losses so far. And yes, we want to finish everything what we want to do what we said we want to do this year. And we also -- there is a couple new initiatives like launching the UK lines -- launch Gaiam lines in the UK and taking the music distribution what we had through third parties direct, and do whenever we need to do there because we had a contract, and so whatever costs will be associated with it will go through.

And we also said that we comfortable with whatever you have there for next year as an analyst. So it wouldn't really impact anything what we do, but in the fourth Q, we just want to get through what will be a profitable quarter when we have (indiscernible) to focus how much it is going to be. We glad that our sales and comps increased and we want to make sure that we don't lose the momentum and get to double-digit internal growth.

I think I understand that better. So the 9 cents you're talking about is the first three quarters of this year?

Yes, that was a loss, what we have so far in nine months.

Okay, and another question, and I apologize if you answered it earlier, but I couldn't tell from the press release if the new kid merchandise at Target had already been shipped and was in third-quarter revenue or was it going to be in the fourth quarter?

No, it's in third-quarter revenues, and it accounted for a little over 300,000, and it should be out in you local stores, if not this past week then this coming week.

How come I thought it was going to be more like a million or two?

I think when we were talking about all our new launches, which included the stores-in-store Barnes & Noble, that it was around a $2 million new launches we had planned for third quarter. The Barnes & Noble was over 1.6 million.

Okay, thanks, Lynn.

(OPERATOR INSTRUCTIONS) Jeffrey Wilson.

I've just been really happy with Gaiam as far as being an industry leader, and we've been using products (indiscernible). We have children and we've been -- just one thing has been concerning us. We've seen some very close to copying in some of the kids' stuff that has come out -- we just saw that in regards to some of the yoga products that have come out. And we were concerned because we always thought Gaiam was the leader on this type of thing, and it seems almost like some invitation there. I was wondering if you would comment on that and want to know why that's -- if that's part of your strategy or -- Specifically, we had a gift (indiscernible) us Christmas or something had to buy a lot of yoga tapes, and kids' yoga. And the new tape that we saw had almost the same stuff on it. I mean created (indiscernible). They're leading here.

We certainly had all that long before Wayloni (ph) did.

Excuse me.

We had those yoga tapes long before Wayloni did.

There's a lot of people who copy what we do. We don't copy them. We (indiscernible). But all these people are very small competitors. But you see them on a specialty stores, and we don't really right now, because we kind of (indiscernible) -- we don't really try to hit the specialty stores yet. But we will include that as our sales force makeover is evolved. But we probably, as far as that marketshare, we probably still have together more than all of our competitors together. But there will be always people competing as long as we have a good product and as long as market is there. If you don't have competitors, you don't have a market.

(indiscernible) try to understand what your saying is that the Wayloni was copying the product that you already had out?

Yes.

When did this -- I'm confused because I saw that come out first and that's why I'm confused.

We had it that way before that. But it doesn't matter -- competitors are competitors no matter where (indiscernible).

We're strictly continuing our leadership position.

There's probably 20 or 30 competitors out there, but (indiscernible).

(OPERATOR INSTRUCTIONS) At this time, we have no further questions.

We would like to thank you, and we will hopefully talk to you on the next call on the 26th of February. Thank you very much.