Helen of Troy Ltd (HELE) 2012 Q3 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Helen of Troy third-quarter conference call for fiscal 2012.

At this time, I would like to inform you that all participants are in listen-only mode.

Also, today's conference is being recorded.

At the request of the Company, we will open the conference up for questions and answers after the presentation.

Our speakers for this morning's conference call are Gerald Rubin, Chairman, Chief Executive Officer, and President; Thomas Benson, Senior Vice President and Chief Financial Officer; and Brian Grass, Vice President and Assistant Chief Financial Officer.

I will now turn the conference over to Brian Grass.

Please go ahead, sir.

Good morning, everyone, and welcome to Helen of Troy's third-quarter conference call for fiscal 2012.

The agenda for this morning's conference call is as follows.

We will have a brief forward-looking statement review followed by Mr.

Rubin, who will discuss our third-quarter earnings release and related results of operation for Helen of Troy, followed by a financial review of our income statement and balance sheet for the quarter by Tom Benson, or Chief Financial Officer, and finally, an open question-and-answer session for those of you with any further questions.

Safe Harbor -- this conference call may contain certain forward-looking statements that are based on management's current expectation with respect to future events or financial performance.

A number of risks or uncertainties could cause actual results to differ materially from historical or anticipated results.

Generally, the words anticipates, believes, expects and other similar words identify forward-looking statements.

Forward-looking statements are subject to risks that could cause such statements to differ materially from actual.

This conference call may also include information that may be considered non-GAAP financial information.

These non-GAAP measures are not an alternative to GAAP financial information and may be calculated differently than the non-GAAP financial information disclosed by other companies.

The Company cautions listeners to not place undue reliance on forward-looking statements or non-GAAP information.

Before I turn the conference call over to our Chairman, Mr.

Rubin, I would like to inform all interested parties that a copy of today's earnings release has been posted to our website at www.hotus.com.

The earnings release contains tables that reconcile non-GAAP financial measures to their corresponding GAAP-based measures.

The release can be accessed by selecting the Investor Relations tab on our home page and then the News tab.

I will now turn the conference over to Mr.

Gerald Rubin, Chairman, CEO, and President of Helen of Troy.

Thank you Brian.

Good morning to everybody, and welcome to our third-quarter conference call.

Helen of Troy today reported record net sales revenue and record net income for the third-quarter and nine months ended November 30, 2011.

The third-quarter net sales revenue was $338.785 million versus net sales revenue of $205 million in the same period of the prior year, an increase of $133.784 million, or 65.3%, due largely to the acquisition of Kaz, Inc.

on December 31, 2010.

Third-quarter net income was $32.879 million or $1.04 per fully diluted share, compared with $27 million or $0.86 per fully diluted share for the same period last year, an increase in net income of $5.816 million, or 21.5%.

Net sales revenue for the nine months ending November 30, 2011 was $877.672 million versus net sales revenue of $540 million in the same period of the prior year, an increase of $347.695 million, or 64.4%, also due largely to the Kaz acquisition.

Net income for the first nine months of the fiscal year was $81 million, or $2.56 per fully diluted share, compared with $68.923 million or $2.20 per fully diluted share for the same period in the prior year, an increase in net income of $12.154 million, or 17.6%.

The net sales revenue for the Houseware segment increased 4.7% in the third quarter compared to last year's third quarter, and net sales revenue for the Personal Care segment increased 1.7% in the third quarter.

The company's new Healthcare/Home Environment segment provided an increase of 3.5% compared to pro forma preacquisition results for the same period last year.

Net sales for the Houseware segment increased 9.8% for the nine-month period ending November 30, 2011.

The net sales revenue for the Personal Care segment increased 2.4% for the nine months ending November 30.

The Healthcare/Home Environment segment provided an increase of 3.2% for the nine-month period compared to the pro forma preacquisition results for the same period last year.

We are pleased with our record sales and record earnings for the third quarter and year-to-date, given the challenging retail environment.

Operating income increased by 32.6% and 25.5%, respectively, for the three months and the nine months ending November 30, 2011.

The integration of and expansion of our business in the Healthcare/Home Environment segment continues to progress according to plan.

On December 30, 2011, we completed our acquisition of the PUR Home Water Filtration business from the Procter & Gamble Company at a purchase price of $160 million.

PUR product lines include faucet-mount water filtration systems and filters, pitcher filtration systems and filters and refrigerator filters.

PUR will be operated as a part of the Healthcare/Home Environment segment.

PUR shares many of the segment's existing customer base, target audience, and product focus areas.

The acquisition of PUR adds an important brand to our portfolio of well-recognized and well-trusted consumer brands.

We believe the acquisition will be immediately accretive to earnings.

While domestic and global economic indicators continue to provide mixed signals regarding economic recovery, the Company's core strengths endure and continue to execute on our business plan.

Our business plan includes investment in new product line development, sourcing and product cost management initiatives to partially offset commodity and other cost increases, implementation of numerous productivity initiatives to control operating expense and continued pursuit of additional acquisitions of complementary businesses or product lines.

We confirm our previously issued fully diluted earnings per share guidance of $3.40 to $3.50 for fiscal 2012 ending on February 29, 2012.

We're confident that we will continue our leadership positions in providing innovative products in order to serve our retail partners and consumers.

I would now like to turn over our conference call to Tom Benson, our CFO, for the financial review.

Thank you, Gerry, and good morning, everyone.

In the third quarter, we experienced a year-over-year net sales revenue increase of $133.8 million, or 65.3%, primarily reflecting the impact of the Kaz acquisition as well as organic growth in the Housewares and Personal Care segments.

Gross profit margin in the third quarter declined by 5.9 percentage points year-over-year, due primarily to the impact of lower margins earned in the Healthcare/home Environment segment, which is new to our financial results this year.

Third-quarter selling, general and administrative expense as a percentage of net sales revenue decreased by 2.9 percentage points compared to the same period last year.

Third-quarter net income was $32.9 million compared to $27.1 million for the same period last year.

Diluted earnings per share for the third quarter was $1.04 compared to $0.86 for the same period last year, an increase of 20.9%.

On December 30, 2011, we closed the previously announced agreement to acquire the PUR Water Purification business from the Procter & Gamble Company.

Third-quarter net sales revenue increased 65.3% year-over-year.

Net sales revenue for the third quarter of fiscal 2012 was $338.8 million compared to $205 million in the prior-year third quarter.

This is a dollar increase of $133.8 million or 65.3%.

The increase in net sales revenue -- in net sales reflects incremental sales from the Kaz acquisition and organic growth in the Housewares and Personal Care segments of 4.7% and 1.7%, respectively, in a difficult retail sales environment.

Operating income for the third quarter of fiscal 2012 was $41.8 million, which is 12.3% of net sales compared to $31.5 million or 15.4% of net sales in the prior-year third quarter.

This is a dollar increase of $10.3 million and a percentage increase of 32.6%.

The increase reflects the impact of incremental operating income from the Healthcare/Home Environment segment.

Year-over-year operating income in the Housewares and Personal Care segments was unfavorably impacted by a decline in gross profit margin due to product cost increases and higher promotional discounts.

Personal Care operating income also included the unfavorable impact of net foreign exchange gains/losses year-over-year.

Net income for the third quarter of fiscal 2012 was $32.9 million, which is 9.7% of net sales, compared to $27.1 million or 13.2% of net sales in the prior-year third quarter.

This is a dollar increase of $5.8 million, or 21.5%.

Diluted earnings per share for the third quarter of fiscal 2012 was $1.04 compared to $0.86 in the third quarter of fiscal 2011.

This is an $0.18 increase in diluted earnings per share or 20.9%.

Third-quarter net income and diluted earnings per share growth primarily reflects the incremental operating income from Healthcare/Home Environment segment, partially offset by gross profit declines in our other two segments, the unfavorable impact of foreign currency exchange gains/losses year-over-year, and higher interest and tax expense.

Now, I will provide a more detailed review of the various components of our financial performance.

Products in our Personal Care segment include hairdryers, straightening irons, curling irons, thermal brushes, massagers, spa products, foot baths, hairbrushes and accessories, liquid hair care and styling products, men's fragrances, men's and women's antiperspirants and deodorants, foot powder, body powder and skin care products.

Key brands in this segment include Revlon, Vidal Sassoon, Hot Tools, Dr.

Scholl's, Pro Beauty Tools, TONI&GUY, Brute, Ammens, Infusium 23, Pert Plus and Sure.

Personal Care net sales revenue for the third quarter of fiscal 2012 was $149 million compared to $146.5 million in the third quarter of fiscal 2011.

This is a dollar increase of $2.5 million or 1.7%.

The growth in Personal Care net sales primarily reflects expanded distribution with a key retail customers.

Our Housewares segment consists of the OXO business.

OXO is a leader in providing innovative consumer product tools in a variety of areas, including kitchen, cleaning, storage, and organization.

Brands that we sell include OXO Good Grips, OXO Steel, OXO SoftWorks, OXO Touchables and OXO Tots.

Housewares net sales revenue for the third quarter of fiscal 2012 was $61.2 million compared to $58.5 million in the third quarter of 2011.

This is a dollar increase of $2.7 million, or 4.7%.

Sales growth was driven primarily by expanded shelf space with a key retail account and shipments of the OXO Tots Baby and Toddler product line.

As mentioned last year, there was early -- I'm sorry, as mentioned last quarter, there were early promotional closeout sales in the second fiscal quarter of this year that have historically shipped in the third and fourth quarters.

This was a contributing factor to the decline in gross sales growth compared to historical rates.

On a year-to-date basis, Housewares net sales are up 9.8% compared to the same period last year.

Our Healthcare/Home Environment segment consists of the Kaz business acquired in December 31, 2010.

Kaz is a world leader in providing a broad range of consumer products in two primary product categories, consisting of Healthcare and Home Environment.

Kaz markets a number of well-known brands including Vick's, Braun, Honeywell, Kaz, Smart Temp, SoftHeat, Duracraft, [Protect], Stinger and NOsquito.

Healthcare/Home Environment net sales revenue for the third quarter was $128.6 million.

On a pro forma basis, net sales increased 3.5% compared to the same period last year, prior to the acquisition.

Gross profit for the third quarter of fiscal 2012 was $133.2 million, which is 39.3% of net sales, compared to $92.7 million, or 45.2% of net sales, in the prior-year third quarter.

This is a dollar increase of $40.4 million and a percentage increase of 43.6% in dollar terms.

Gross profit margin as a percent of sales decreased 5.9 percentage points.

The decline in gross profit margin as a percent of sales is primarily due to the dilutive impact of the Healthcare/Home Environment segment, which has historically operated with a lower gross profit margin than our other two segments, product cost increases and higher promotional discounts.

Selling, general and administrative expense for the third quarter of fiscal 2012 was $91.4 million, which is 27% of net sales, compared to $61.2 million or 29.9% of net sales in the third quarter of fiscal 2012.

This is a dollar increase of $30.2 million, a percentage increase of 49.3% in dollar terms, but a decrease as a percentage of sales of 2.9 percentage points.

The year-over-year decrease in SG&A as a percentage of sales is primarily due to the impact of Kaz, which operated on lower SG&A expense as a percentage of sales for the third quarter of fiscal 2012 than the Company's consolidated SG&A as a percent of sales for the same period last year.

The overall decrease was partially offset by the unfavorable impact of net foreign exchange gain/losses year-over-year.

Interest expense for the third quarter was $3 million or 0.9% of net sales revenue, compared to $2.1 million or 1% of net sales revenue in the same quarter last year.

The dollar increase in interest expenses due to additional debt outstanding associated with the Kaz acquisition.

Income tax expense for the third quarter of fiscal 2012 was $6.2 million compared to $2.6 million in the third quarter of fiscal 2011.

Third-quarter income tax expense was 15.8% of pretax earnings compared to 8.6% effective tax rate in the same quarter last year.

The fluctuation in our effective tax rate is primarily due to the impact of Kaz on the mix of income tax in high rate jurisdictions.

I will now discuss our financial position.

Our cash and cash equivalents balance was $35.4 million at November 30, 2011, compared to $70.6 million at November 30, 2010.

During the quarter, we settled and agreement to sell our remaining portfolio of $18.9 million par value auction rate securities for approximately 96% of par, resulting debt proceeds of $18.1 million.

Accounts receivable were $229.2 million at November 30, 2011, compared to $152.4 million at November 30, 2010.

The increase in receivables is primarily due to the Kaz acquisition.

Receivables turnover improved to 62.9 days at November 30, 2011, compared to 68 days at November 30, 2010.

On December 15, we amended our line of credit agreement to increase the amount of borrowings available under the revolving commitment from $150 million to $250 million.

Inventory at November 30, 2011 was $251.8 million compared to $152.3 million at November 30, 2010.

The increase in inventory relates primarily to the Kaz acquisition.

Inventory turnover improved to three times at November 30, 2011, compared to 2.7 times at November 30, 2010.

Stockholders equity increased $108.3 million to $764.2 million at November 30, 2011, compared to $655.9 million at November 30, 2010.

I will now turn it over to Gerry for questions.

Operator, we can open it up for questions.

(Operator instructions).

Jason Gere, RBC Capital Markets.

Thanks.

Good morning.

Just a couple of questions -- I guess the first thing, on OXO, I know last quarter you told us about some of the forward buying I think that might have been in there, the stronger buying in the first half of the year.

What was the actual impact of that with some of the closeout sales in the second quarter?

Are you comfortable with -- I mean OXO has been such a tremendous growth driver for you guys, high single digits.

Are you comfortable with that type of growth level as you look into fiscal 2013?

This is Tom Benson.

Good morning.

The sales that were pulled forward to the second quarter were approximately $4.4 million.

On a year-to-date basis, the OXO business has year-over-year sales growth of 9.8%, which is in line with the high single digit that we had discussed.

Moving forward to the next year, we are still looking for high single digit growth from the OXO business.

Okay, terrific.

The second question, just on the Personal Care business -- now, was there any currency impact in that business on the 1.7% gain on sales?

What was the organic number?

Was that 1.7%, or was currency neutral?

The currency impact for the quarter was $590,000.

The vast majority of that is in the Personal Care business.

It was $590,000 favorable.

Okay, good.

So then I guess I was wondering if you could kind of break down the liquids business versus maybe the appliances.

I know you talked about a gain with a retailer as part of the reason for the improvement, sequential improvement, from the August quarter.

But I was wondering if you could talk about that versus maybe the sellthrough within each of those two components.

Well, the increase was pretty close in each of the liquids and the Personal Care division.

Sellthrough on both are doing very, very well.

Some customers have done very well, and there's other customers that haven't, and I guess you will get the reports on the retailers' sales in the next few days, if they are not out already.

The domestic business is actually stronger than the international business.

That's where I think the sales could have been much higher if it hadn't been for the international business.

But the domestic business seems to have been very strong for the last quarter.

Because I guess I'm trying to figure out -- because if we go back to the first quarter, it looked like the Personal Care business was going to turn the corner in terms of the organic sales growth coming through.

Then the August quarter was a little bit weaker on the appliance side, and now we've got a positive comp again.

So I'm just wondering.

Are you comfortable as we look forward that Personal Care business, which -- you know, the liquids business and the appliance, which obviously is a little bit more economic sensitive -- that it's finally turning the corner, that you could see either flat to positive organic sales trends as you look out to the next maybe year or so?

That's, I guess, the genesis of the question.

You know, we are certainly not looking for any decreases in the Personal Care segment.

We are looking for increases.

We have a lot of new products.

We have increased distribution with retailers, and it's just a matter of the consumer going into the stores and buying the products.

So yes, we are looking for an increase.

As you saw, we have an increase for the nine months.

I know we have good quarters, bad quarters.

But the sales revenue for the nine months was up 2.4%.

So that kind of tells you the picture that sales are up, and hopefully they will continue to be up.

Okay, great.

The last question, and I'll hand it off to the next caller, is just on the tax rate.

Tom, how should we think about the tax rate?

You have talked in the past about 10% to 15%.

But as you know, that's a wild swing in EPS.

So this quarter, obviously you are above that.

You've got PUR coming in, which I assume will be at a higher tax rate as well.

So what should we be using for modeling?

Is that part of the reason why the EPS guidance is unchanged with so many of the other positives that your kind of laying out today?

Yes.

As I had mentioned before, with Kaz and now with the acquisition of PUR, our tax rate will be moving up some to I would now use a range 12% to 15% for that, because it is moving up this quarter.

It was a very positive quarter for our Kaz business, and that's what drove our tax rate to 15.8% for the quarter.

So I'd use 12% to 15% going forward for right now.

Okay, very good, and I'll pass on to the next caller.

Lee Giordano with Imperial Capital.

Thanks.

Good morning, everybody.

My question is on the PUR business.

I'm just wondering how you see the long-term growth opportunity for PUR and how will you be managing that business differently than P&G was managing it before you bought it?

Well, PUR was a division of P&G.

We have now put into our Healthcare/Home environments segment.

And the salespeople that we have will sell not only all the Kaz products, but they will sell all of the PUR products.

They are almost the same customers that they sell to.

I think we have a little more strength, even though I know P&G is certainly a lot bigger than we are.

But the people who sold the PUR had nothing to do with the shampoo business or any of their other consumables.

So, we believe that we will be stronger and pay more attention to the PUR business than they did.

I think that's probably one of the reasons that they sold to business, is that they couldn't merge that in with their liquid business.

It's a little different business.

But we do have other licenses with Procter & Gamble where they have seemed to pass on the Vick's and they passed on the Braun business on to us.

So they feel like their expertise is not in hard goods, that their expertise is more in what I call down-the-drain products, liquid products.

So we are very hopeful that we can run the business better than they did.

They certainly left us a nice business to start with, and we think we can hopefully do better on the sourcing and on the distribution.

So we are looking for it to be a gross vehicle for Helen of Troy.

Great.

Do you see a longer-term international opportunity with PUR?

What does the international business look like currently?

You know, right now, they don't have any international business, so that is an area that we think that there is growth.

They actually are selling little or nothing internationally.

We do believe that there is international business.

There's no reason why other countries can't purchase the PUR products as they do in the United States.

So that's another area of growth, the geography.

Just quickly, what was debt outstanding at the end of the quarter?

Also, what was CapEx in the quarter?

Thanks.

This is Tom Benson.

The debt -- let me just get it here for you.

The debt was $248 million at the end of the quarter.

We did -- at the end of December, when we closed on the PUR, we borrowed an additional $160 million.

But we had paid off, I think, $30 million of debt between the end of November and December.

So, it's like $378 million to date.

The CapEx for the quarter I don't know.

I can tell you, for the year-to-date, it's $11.2 million.

Rommel Dionisio, Wedbush.

Hi, good morning.

Just a question on distribution.

With the addition of PUR, are you guys starting to bump up in terms of capacity constraints on the Southaven facility?

If so, would that require any CapEx or facility expansion?

Well, we actually are taking on some additional space not in our warehouse but in a rental facility that Kaz had of approximately 100,000 feet.

That should take care of the PUR operation.

So we are increasing in the Kaz warehouse.

As you all know, we have our own 1.2 million square-foot warehouse very close to them in Southaven, Mississippi and they are in Memphis.

Kaz has about approximately 500,000, square feet of space.

So we shouldn't have any problem with that.

Also, during the -- we have been working on it for the last year, but during the Christmas/new year time period, we converted our computer to a new version of Oracle, so we have upgraded that with the new Oracle software to take care of our growth currently and in the future.

So we believe that conversion is going to help us out to grow the business also or to handle the growth.

Great, that's helpful.

Thank you, Gerry.

Steve Friedman with Wells Fargo Advisors.

Good morning, Gerry and Tom and Brian.

Congratulations on a record quarter in both sales and earnings.

I have a couple of questions regarding the PUR acquisition.

Gerry, I don't know if it has been asked or not, but how are the margins on PUR compared to the rest of your products in your other lines, the Personal Care, the Housewares, etc.?

The gross profit on PUR and hopefully the bottom line also will be better than what Helen of Troy had before the Kaz acquisition.

So those numbers will be better, so that will help us increase our gross profit.

The gross profit in Kaz is lower than what we currently have, but we are working on getting that gross profit up also.

Of course, the reason for the drop that we had is that we had a lot of Kaz sales, and the Kaz sales have lower gross profit than our normal business.

But PUR is going to add to the gross profit of Helen of Troy.

It's larger than what we normally have.

Okay, that's good to hear.

Now, you closed on December 30 or 31, whichever.

I believe you indicate that it's going to be immediately accretive.

So that would give you two months in the last quarter, if I'm correct, of earnings from PUR.

That's correct.

We are going to have sales and earnings for two months.

All right.

Gerry or Tom, could you tell me how your first month of the last quarter looks in December?

Well, we are just getting the readings (technical difficulty) from the retailers.

I think what's happening is the retailers are a little more conservative than I thought as far as re-ordering.

They are trying to get inventories down because they closed their (technical difficulty) on January 31.

So we have (technical difficulty) again another (technical difficulty) to increase our sales this quarter.

Okay, well, let me just see if you can help me understand something.

You have affirmed your guidance for the fiscal year ending February, I guess that's 2012 fiscal year, of $3.40 to $3.50 a share.

It would be reasonable to assume, with the Kaz acquisition and the PUR closing and the accretion from that, to approach, I would think, in -- I know you haven't given guidance yet -- but it would seem to me it would be reasonable to see approaching a $4 per share, earnings per share if -- take a look at the historical record on Helen of Troy.

Back in 2004, I believe the Company was trading at over $37 a share, was earning about $1.90 and had sales of less than $500 million of what we are earning today.

I guess it seems like, even on the earnings that you are affirming and the earnings that should approach $4, on a historical multiple of 12 to 15 times earnings, shouldn't we be looking at a stock somewhere north of $50 or $60 a share?

What am I missing or what is the market missing?

Steve, thank you for those statistics.

You know, I don't have all the answers for you.

As CEO of Helen of Troy, I certainly would like the stock to be $50 to $60.

But it's the shareholders that buy the stock that make it go up.

But you're right; historically, we have gotten PEs of around 15.

I guess that's what the Company deserves.

So we should be recognized for our growth for the last couple of years and for the future growth and for possible new acquisitions and the current acquisitions.

Hopefully, the stock price will hit the numbers that you said.

It certainly is a little disappointing that seven years ago, when the Company was much smaller, the stock was $37, and the stock today is $31.

So I wish I had all the answers for you.

But I agree with you the stock price should be much, much higher.

Okay, thank you, Gerry.

I look forward to continued good results.

(Operator instructions).

John San Marco with Janney Capital Markets.

Good morning and congratulations on the quarter and the PUR transaction.

I believe you answered a prior question that PUR had gross margins that were higher than Company levels before Kaz.

First of all, did I hear that directly?

Then, secondly, what about on an operating margin basis?

What's the differential between PUR and the legacy company?

This is Tom Benson.

Yes, it's correct that the gross profit margin for PUR -- we expect it will be higher than the current combined gross margin and, actually, the historical Helen of Troy before the Kaz gross margin.

So it should help move our overall gross margin up.

The operating income we expect it to be also a very strong contributor, higher than our combined overall business.

It will -- PUR is a business that we plan on having a lot of advertising support.

So it will have a little higher SG&A.

Bottom line, it will be very strong.

Higher advertising support than the current business you run gets or higher advertising support than Procter & Gamble was spending or --?

Higher than our current businesses.

We will continue the amount of support that P&G has provided to it, at least over the last year.

That's helpful.

Thank you.

Then the promotional pressure that you cited as one of the drivers of gross margin contraction -- can you quantify what that financial impact was and then maybe also where you saw those promotions the sharpest?

Yes.

It had a slight impact on the gross profit.

We don't really give specific numbers on it.

It was across the board with a number of our retailers.

There has been a lot of promotional activity at retail in the last quarter.

If anybody has been out to the malls, they see it.

Okay.

All right.

That's helpful.

Thanks.

Then, lastly, did your fourth-quarter outlook change from when you last updated guidance?

Because Q3 seems to have been a little bit better, certainly better than I had expected.

I don't know about your own expectations.

Plus, you obviously get the immediate accretion from PUR.

So, I'm just trying to figure out why you didn't raise guidance or haven't pointed to the high end of the range.

As far as our projections, we are keeping them the same.

As I mention every quarter, hopefully we look forward to beating them.

But it is a tough retail environment out there, and we just have to see how things work out after Christmas.

As I mentioned before, you will get all the retailers' revenue and their profits and see how they did.

I always say we are as good as the customers coming in the store and buying our product.

We do have a lot of distribution, and it's up to the customers to come in and buy it.

If there's good store traffic, we will get our share of the business.

So (multiple speakers) good quarter.

All right.

Well, thank you very much for the color and best of luck.

Jeff Matthews with Ram Partners.

I think, Gerry, you're supposed to be asking us about the stock price, not vice versa.

But I'm wondering about the cost side of things, what's going on there, and how the outlook for this calendar year looks on that respect versus 2011.

Are you talking about the past or the future?

In the past, the prices --

How things look into the new year.

Okay, well, prices to go up this past year.

We're hopeful that we won't see that much of the increases that we saw this past year, but I think prices will go up.

We do buy a lot of products in Asia, and we are buying, sourcing in Mexico.

We source in the United States.

I'm sure labor will go up, commodity prices will go up.

There are some things that offset that, but overall we are not looking for a decrease in purchasing.

Hopefully, the increases are slight and not big amounts.

Again, hopefully we can pass them on to the retailer if they are small amounts.

Do you think the pressure is less, going ahead, or more than last year, about the same?

I'm sorry.

What?

Do you think the price, the cost pressure is less than last year or more or about the same?

I think they are less.

I didn't say they went away, but I think they are less going forward than they were this past year.

Got it.

Could you also discuss the impact of Internet sales?

I know you sell through Zappos those on Amazon -- how that has affected your business?

Well, we do have a lot of our products being sold through Internet customers.

It's hard to measure whether it's a positive or negative.

I know that they are increasing their sales with us.

We are doing -- some of them are doing nicely.

But it's not a big part of our business, a very, very small part of our business, Internet sales, right now.

That's all I can tell you right now because we don't -- I don't know if it affects the brick-and-mortar customers are not, but we'll see as time goes on.

Okay, thank you.

As there are no further questions, I will turn the conference back to Gerald Rubin to conclude.

I wanted to thank everybody for participating in our third-quarter conference call.

Hopefully, we will all be together, which we will, for our fourth-quarter, which is the end of our fiscal year.

So it's going to be sometime in May that we will our next conference call.

So thank you very, very much.

I appreciate your participation.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 888-203-1112 with replay passcode 4540608.

This concludes our conference call for today.

Thank you all for participating and have a nice day.

All parties may disconnect now.