Icon Energy Corp (ICON) 2003 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 and fiscal year 2004 Candie's Inc. earnings conference call. (OPERATOR INSTRUCTIONS). I would like to now turn the presentation over to your host for today's call, Ms. Deborah Stehr, Senior Vice President. Please go ahead, ma'am.

Good morning. I am going to open the call by reading a statement under the Safe Harbor Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this conference call are forward-looking statements that involve a number of risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond the control of the Company. This may cause the actual results, performance or achievements of the Company to be materially different from the results or achievements expressed or implied by such statements. The words believes, anticipates, expects, confident and similar expressions identify forward-looking statements. Listeners are cautioned not to place undue reliance on these statements which speak only as of the date the statement was made.

I would like to turn the call over to Richard Danderline, Executive Vice President, Finance and Operations.

Thank you, Debra. As previously announced in May 2003, the Company has licensed its footwear operations. As of the end of fiscal 2004, the Company has completed the transition of its footwear business to the new licensing model, discontinuing all activity in its operating wholesale and retail footwear divisions including the closing of all of its retail stores.

As anticipated, this transition has adversely impacted the operating results of the footwear segment for the fourth quarter and fiscal 2004. Consolidated net sales for the fourth quarter were 18.2 million as compared to 37.4 million in the prior year quarter. For fiscal 2004, consolidated net sales were 124.6 million as compared to 151.6 million in the prior fiscal year.

Licensing income, which is the core of the Company's business under its new licensing model, was 1.75 million for the fourth quarter as compared to 934,000 in the prior year quarter, an increase of 87 percent. For fiscal 2004, licensing income was 6.6 million as compared to 5.1 million in the prior fiscal year, an increase of 27.9 percent with comparable licensing income for 2004 increasing $1.8 million or 39.1 percent. The Company reported a consolidated net loss of 6.4 million or 25 cents per share for the fourth quarter and a consolidated net loss of 11.3 million or 45 cents per share for fiscal 2004 compared to a consolidated net loss of 7.5 million or 30 cents per share and a consolidated net loss of 3.9 million or 17 cents per share for the prior year quarter and fiscal year respectively.

At this time, I would like to turn the call over to Neil Cole, President and CEO of Candie's Inc.

Thank you, Richard. The transition out of the footwear operation is now complete. We have discontinued all activities in the wholesale business and closed all our retail stores. Altogether we eliminated over 200 positions at both the corporate and retail level.

As anticipated, the transition to the licensing model and out of footwear operations adversely affected the operating results of both the fourth quarter and the year.

Moving into the current year, we will be focusing on building our royalty base in both the Candie's brand and BONGO. We will continue to operate our wholly-owned subsidiary, Bright Star, which is operated at a separate facility in New Jersey. Bright Star is a factory-direct footwear business that holds no inventory and continues to perform well due to a high demand of casual workboots. We believe Bright Star will continue to bring in over $2 million of commission with an approximate $1 million of overhead.

BONGO jeanswear is currently operated by a third-party manager, Sweet Sportswear, pursuant to a management agreement that expires this year. The BONGO jeans business is generating over $70 million in sales and growing, reflecting the continued acceptance of the BONGO brand among junior consumers. We are pursuing licensing the jeanswear business to a third party, which is consistent with our new business model to generate additional revenue without the risks and capital requirements of an operating business.

Having been through a difficult footwear transition where we lost money, we are optimistic in our jeanswear transition due to the $1.7 million guaranteed profit from Sweet Sportswear through our management agreement.

In breaking down our current licensing business, I will start with the Candie's brand. Our spring Candie's advertising and marketing campaign featuring American Idol Kelly Clarkson and Jenny McCarthy has reached over $80 million of consumers, continuing to leverage our brand awareness. This year Candie's footwear should bring in approximately $2.5 million. Our spring line produced by licensee, Steve Madden, is retailing very well the last few weeks. We are confident they will continue to build the footwear business as minimum guarantees move up to $3.5 and $4 million in the next two years.

With total guarantees over $20 million over the first term, we are confident they have an incentive and obligation to greatly expand the business. Our eyewear and fragrance agreements should also bring in over $2 million this year. Along with our new handbag deal, we are anticipating an additional three to five Candie's licensing deals done in the very near future, as our apparel dealer Gadzooks will wind down at the end of the second quarter.

Total Candie's royalties are projected between $4.5 and $5 million this current year. The BONGO brand has an exciting new campaign featuring Rachel Bilson, a hot new star from the hit TV show, The OC. We will continue to run our TV and print campaign and enter new product extensions utilizing the BONGO brand. Our BONGO licensing program presently has seven licensees with the most revenue generated by the kids jeanswear, Mamie Brothers (ph), and the footwear company, Kenneth Cole Productions. Both kids jeanswear and footwear should generate over $1.5 million each, along with our new categories including tops, swimwear, eyewear, handbags and fashion accessories. We expect to generate approximately $4.5 to $5 million in BONGO licensing, not including BONGO or junior jeanswear.

In fiscal '05 or calendar '04, we are projecting royalty income of between $9.5 and $10 million from the licensing business and an additional $2 million of commission income from Bright Star. Related to these activities, we anticipate total operating expenses of approximately $8 million, which includes all advertising expenses to support the projected royalty income. Also included in the operating expenses is $1.7 million of non-cash depreciation and amortization.

Interest expense this year is projected at approximately $2.5 million. In addition, we expect Unzipped to give us a net income guarantee of $1.7 million at minimum. As we move into calendar '05 or fiscal '06, we anticipate having over $20 million in royalties with minimal increases in overhead. With the anticipated transition of BONGO jeanswear to a license, we will eliminate Unzipped's remaining revolving line of credit and will realize its tangible net worth, allowing for additional reductions in long-term debt and interest expense.

As we move forward, we will look at other opportunities to leverage our brand development and brand management skills. We believe the formula we are implementing with both BONGO and Candie's can work with other brands that we can either acquire or develop.

In adding further expertise in the fashioning licensing field, we have added two very strong board members in Michael Groveman and Drew Cohen. We look forward to working with them to continue to build value to our shareholders.

In conclusion, we are excited about the opportunities that lie ahead. We believe we have reached a point where our business model will allow our shareholders to reap the rewards of many years of investing in our strong brand.

With that, I would like to open up the call to questions.

(OPERATOR INSTRUCTIONS).

This could be very easy.

(OPERATOR INSTRUCTIONS). There are no questions at this time, sir. Sorry. We do have one that just came through. Michael Weiss, Jocesma Capital (ph).

Hi, Neil. How are you?

I thought I was getting off this real easy.

I know. I wasn't going to let you get off that easy. Can you comment about -- you were running through some of those numbers pretty quickly. How do these numbers compare with what we were talking about on the third-quarter call? Are they basically the same?

I think they are pretty much the same. There could be some nuances of a few hundred thousand dollars, but they are pretty much the same as we discussed at the end of the third quarter.

How are the license -- how is Kenneth Cole doing with the BONGO shoe license?

They are doing great. They have grown the business I think close to 20-30 percent from when we had it, and we are excited because we are going forward, launching the menswear business, the men's footwear this coming season, and we think it's going to add a whole new dimension to the BONGO brand as we bring in menswear.

Okay and you hope to announce three to five new licenses in the short-term?

Three to five in Candie's and hopefully another few in BONGO. So we are going to be very active. We have a lot of agreements that are pending, that we are in the middle of negotiations with, and hopefully you are going to hear a lot of announcements over the next few months.

Okay. Thanks.

David Berman, Berman Capital.

Hi, Neil.

David, I have no inventory.

Exactly what I was going to ask you. What is the story with your balance sheet in terms of what is the recapitalization? Are you comfortable with the cash flow in there?

Yes. One of the advantages of this new model is not only in inventory we are able to have a pretty strong cash flow, and this year's numbers bring in somewhere around $4 or $5 million in positive cash flow, and obviously next year's is substantially higher. Also, as we wind down the operating business of BONGO jeanswear, we should be netting a substantial amount of capital that comes from the liquidation of the BONGO jeanswear business, the licensing of the BONGO jeanswear business.

I guess with no inventory, that is why your current liabilities are greater than your current assets?

Correct. But as we take down the businesses, that is going to dramatically shift over the next 18 months.

Right. Are you feeling good about the business?

Yes. It has been a tough 12 months taking down the operating footwear business. But now the Company is pretty stable, and we own two great brands, and I feel pretty good about where we're going. It is going to be pretty exciting.

Well, thank you very much.

Mike Onday (ph), ISC Capital Management.

Good morning. Just a quick question. For fiscal year '06, you had forecasted 20 million royalty income.

Yes.

Using 8 percent of sales, that translates to about 250 million sales. Would that be correct?

Correct.

All right. And that would be compared to '05 -- I mean '04 -- what were your sales like for fiscal year '04?

You know '04 was a transition from the licensing business.

Okay. That is right.

But it would be -- I guess a good barometer would roughly be using around 175 to 200.

And you said that you guys already did 30 percent on BONGO, right, with Kenneth Cole?

I said that their growth has been roughly around 30 percent from when we were operating the footwear business.

(OPERATOR INSTRUCTIONS). There are no further questions at this time, sir.

Hopefully I have explained the business. It is a very simple model -- simple to explain and simple to run. We are excited about it. We feel we do have a focus and we do have a good vision of the business as it moves forward going forward, and we are excited about the various opportunities and thank you all for listening. I am available for individual calls for the rest of the day if anyone would like to call me for further explanation. Thank you very much. Bye-bye.

Thank you, sir. Thank you, ladies and gentlemen, today for your participation. This concludes the conference call. You may now disconnect. Good day.