iMedia Brands Inc (IMBI) 2002 Q3 法說會逐字稿

Good morning and welcome to ValueVision Media's Third Quarter 2002 Earnings Conference Call. All lines have been placed on listen-only mode until the question and answer segment. Today's conference is also being recorded. Before we begin, Anthony Giambetti, Director of Corporate Communications, will read a brief statement.

Today's conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that such forward-looking statements may involve risks and uncertainties that could significantly affect actual results from those expressions in any such forward-looking statements. More detailed information about these risks and uncertainties is contained in ValueVision Media's filings with the SEC.

I would now like to turn the call over to ValueVision Media's Chairman and CEO Gene McCaffery. Thank you, sir, you may begin.

Okay. Thank you. Good morning, and thank you for your interest in our company and participating in our call. Along with us on the call is Dick Barnes, our Chief Operating Officer and Chief Financial Officer. He and I are both in different locations so we may have to pass back and forth a little bit on your questions.

As much of this -- as much of this information with regard to the third quarter has been out in the market for some time, based on the release that we put out a few weeks ago, I'm not going to spend too much time on the release, but just on some key points and then I think we'll open it up to your questions.

Our sales coming out of the quarter, as we stated in the release, and as we showed in the previous release, were very good, and our sales trend for the first few weeks has been -- has been good as well.

Our merchandise margins have returned to what we consider -- the terminology of a traditional, merchandise margin, which means that they are back into the high 30s, and are currently running a few points higher than last year. In fact, our -- our margin dollar increase on our orders is in line with our increase over the last year with regard to our sales.

Many of you called over the last few weeks with regard to -- with margins, in that our top line, while it was affected, eventually was able to come out close to our guidance.

Margins -- margins in our company, unlike sometimes in other more traditional retail companies, our margins are generally manageable. Now, what I mean by that is, with the exception of what we did from a customer -- what we call the customer amends program, where we gave a lot of folks a lot of adjustments in promotional adjustments as well to make up for the fact that we had such poor service through the system conversion, as well as the fact that we maybe -- consciously may be the wrong word.

But we did actually put an enormous amount of computers and big ticket items into our mix for a number of reasons, one of which was that we were having difficulty with the phone calls, with our system conversion, so we actually, you know, very much created the margin situation by some necessity that happened in third quarter and we have adjusted our merchandise mix so that our margins in the fourth quarter, we would expect, would come back to the much more traditional high 30s. And being redundant, but for the first 17 or so days of November, our sales and margins are in line with increases in the 20 percent plus ranges as we mentioned in our -- in our release. So -- so the question may arise, so why do we moderate guidance for fourth quarter? We just felt it was appropriate, given all the uncertainty of the discussions on the economy, potential for market discounting, if Christmas were to get tough, that there was a lot of moderation of fourth-quarter guidance and even though you might say that our guidance range is in the range of third-quarter performance, which we would all agree was not good, it was just a cautious way of looking at fourth quarter and probably doing just what a lot of other companies are doing. 17 days into the first 90 days of a quarter, it's very difficult for us to determine exactly how it's going to come out, other than to provide to you the fact that we are running pretty strong sales and very good margins.

Let me say one last thing, and that is probably what's on most everybody's mind, and that is, our systems and functionality -- our systems and functionality are all working just fine. We do not have any lingering issues that are affecting sales or our ability to service the customer. We pretty much have ended, in the first week or so of November, all of the customer amends programs, and while we're certainly, from a customer service standpoint, willing to deal with any customer issues that may have happened, we believe that most of that is also behind us.

So our sales going into the quarter are pretty good. Our margins going into the quarter are pretty good. We moderated guidance because, as the discussion with senior management, we thought that was the prudent thing to do, and are systems functionality -- all our systems and their functionality are working just fine.

Anybody over there, Dick, want to mention anything else on this?

No, I think that's a pretty good summary, Gene. I'd say let's go to the phones.

Okay. Why don't we just open it up to questions.

Thank you. At this time, if you would like to ask a question, please press star 1 on your touch-tone phone. You will be announced prior to asking your question. Once again, to ask a question, please press star 1.

Our first question comes from Stacey Forbes. Your line is open. Please state your company name.

Hi. Janco Partners. Good morning.

Hi, Stacey.

I just had a couple of questions. One, you know, the polo losses were a little less than we had expected in the quarter and I know it's a seasonal quarter where they are less than the rest of the year, but could you give us an update on that business and kind of where you see that. Is it going to turn free cash -- or cash flow positive next year, and what your expectations are there?

Sure. [inaudible] Dick, you want to kind of take that one first?

Yeah. In terms of next year, Stacey, we are currently working through with Polo.com their 2003 plans. I will say in the current year, they have met or exceeded their objectives, so from that standpoint, we feel pretty good.

The third quarter happens to be a pretty low quarter from an advertising standpoint for them, so, you know, their operating loss and our share of that looks pretty low. That's the primary driving factor behind that.

Clearly, you know, our objectives are to have that business running cash flow positive going forward. You know, the $50 million that we had committed a couple years ago to put into this enterprise actually expires in November, so at that point, they need to be able to pay all their bills and it looks like that is the case.

Okay. And could we get some more details on maybe any holiday promotions and specials that you're currently running, and what impact you're seeing from that so far?

Well, we -- we ran some -- we ran promotions the first part of November, and people were very responsive to the promotions. We have a number of promotions coming up in November and December which, you know, deal with shipping just before the holidays. We've gone through, with our new credit card holders, and we've expanded credit lines to those people that were available to -- for credit line expansion. We have gone out and reissued credit cards to cards that we thought should have been more active than they are, to remind people that they have one. So we have a host of promotions going on between now and December. And then, of course January is a very big month for us. It's a major clearance month, and we have been working with vendors for the last few weeks on developing, you know, very, very strong key items, actually for Christmas as well as January. As you know, when people look at the retail environment and it starts to get somewhat questionable, jewelry and -- and computers and high-ticket items are usually those that are mentioned first, which is why, obviously, many of you, as well as us, always have a concern when there's economic issues or economy issues. But we do find that the consumer has -- is very responsive to promotions, and that the vendors are also very responsive to working with us on the creation of those promotions.

For example, we had some extended payment terms two weeks ago, and all the vendors kicked in whatever the expense of the extended payment terms were for that promotion. I mean, they're in the same position that the retailers are, and that is that if the retailers don't sell it, they end up getting it back. So we do find that during what in what appears to be difficult retail environment times, that, you know, with the vendor structure that we have, that we work together pretty well. So we would anticipate that things should continue the way they are right now.

Okay. And then on the systems provider issues, have you updated your plans at all as -- you know, in terms of trying to get some of the monies back that were lost because of that, in terms of whose fault it may or may not have been?

Yes. We have -- I think we've appropriately identified where we think the fault lies, and probably sometime between the -- before -- excuse me, before the first of the year, we'll make a decision on how best to do that. I would say that it's probably not in -- in anyone's interest to get very specific about that today, but my goal is, prior to the first of the year, for us to pursue that. Hopefully that we -- hopefully we can -- you know, we can pursue it and not get involved in litigation, but we are prepared to involve ourselves in litigation, if necessary.

Okay. And I know you said in the short term, things have been resolved with those systems.

They have.

Do you see any long-term impact at this point or do you think that your customer amends have avoided any long-term issues with your customers?

Yeah. I I'm actually -- it would seem that -- well, first of all, I mean when you annoy as many people as we did, I think it's just realistic to think that you're going to have some kind of an impact from it, which is why we were relatively surprised that when we -- I mean, we might have went overboard. You know, I mean who will ever know the answer to that? When we started to experience all the difficulties we did in mid to late June, July, August, I don't know how many how many times we contacted customers at different levels. And what I mean by that is, you know, we have 40,000 customers that are a large percentage of our business, and their loyalty is very important, and we went back to those customers with very particular offers, even if they hadn't bought anything from us during this period of time. And we also went back to every customer that purchased anything from us from June 1 forward and offered, again, another set of issues, even though they may not have experienced particular difficulty in their -- in their transactions.

So, you know, you'd say, well, I don't know, maybe that was too much. But I think what we probably got -- we probably got some very positive reaction out of it because, you know, as you look at our trend sales in October, which we've published, and if you look at, you know, our sales so far in November, it would not appear that, you know, we've had hangover in -- from a customer standpoint.

Okay. Thank you.

Thank you.

Thanks, Stacey.

Our next question comes from Neily Tominga (ph.) today. Your line is open and please state your company name.

Yeah. Piper Jaffray. Thanks. Hey, I also wanted to know if you could give us a little more discussion in terms of the product categories, like a little more color on what worked, what didn't work, in the third quarter, and then in terms of the holiday mix, the jewelry, are you looking for -- to position it at a lower price point than maybe last year to capitalize on the mood of the economy or, you know, just some more color on that.

Right. Sure. Well, one of the things that happened -- and I think we mentioned it in the first release -- was that clearly, you know, the economy is challenged and credit is challenged because we certainly did find that, you know, with our -- as much time, as much air time as we gave computers, for example, which, you know, is 125, $150 million business with us, as much air time as we gave it, it ended up -- and this is one of those things that we probably were not as aware of as we should have been during the quarter, and that means -- that is that for all the computer sales transactions that we took, a very large percentage of them were canceled. And so while you look like you're -- and when I say "canceled," they didn't pass different credits types of checks. When you net out your sales over the course of days, weeks, and months, the gross sales looked pretty good, and, you know, the net sales after all the credit challenges did not look good on a margin business that had gone from 23 1/2 down to about 18 1/2.

So that was also -- I mean, that's -- that was a problem, on top of whatever other computer problems we had by giving them too many hours, as well as our inability to take sales. Now, what we've done for computers going forward is we've probably cut their hours in half. We've probably taken a look at promotions that don't make it too easy for folks that may not have the kind of credit that's required to be able to get into that gross sales category, and for us to manage computer sales better. So I think that -- and we've also been able to reconfigure the computer makeup of parts so that our margins, we believe now, will be about 211/2. So we've factored in 211/2 point margins with half the hours and hopefully better efficiencies. So that's the computer business, so that's why we don't expect that that will affect our margins negatively in fourth quarter.

The jewelry business, you know, remains to be ,obviously the foundation of what we do. We have taken the price points down. If I remember correctly, last weekend's price points averaged about $267, and that was against something around the 300, 300 and some -- change -- average price point the previous year. So we are trying to manage the price points down but we've been trying to manage the price points down for a long time. Because the return rates on the lower-priced jewelry are significantly better slash lower and the fact that we get a much larger base of customer through additional transactions through lower price points is the way we need to go. I mean the other thing that we're working on -- and if you look at the other categories, you know, we have brought in -- we've brought in the Cheryl Teegs (ph.) with the different cosmetic issues and the Beverly Sassans (ph.) which have all debuted on the air here probably in the last 4 to 6 weeks but the majority of our business remains in the jewelry categories. But what we probably haven't spent a great deal of time on, other than quite some time ago is that, you know, there is a strong need for us to diversify our product categories, in our view, over the next year, two years, three years, and over the past year we have worked on a plan to do that, and the foundation of that plan has, at its core, the ability for us to get better efficiency out of the jewelry categories. And what I mean by that is, you know, how do we get a 50% sales increase in jewelry categories in less hours? Because if you look at our maturity on our sales per home, you know, we -- we would be entitled to that. So investing in our jewelry business -- and I don't mean necessarily financially, but from a talent standpoint, breaking down our business into finer businesses than we do today in order for us to have jewelry kind of pay the way for some of the inefficiencies of new categories going on the air.

Great. Thank you.

As a reminder, if you would like to ask a question, please press star 1. Our next question comes from Bob Evans. Your line is open, and please state your company name.

Craig-Hallum Capital. Good morning.

Good morning.

Hi, Bob.

Can you comment on distribution growth kind of going forward? You added another million homes this quarter. What you might expect going into '03. You've had consistent growth here the last couple years, but what are your thoughts?

Well, you know, I always kind of answer this the same way and I'm not sure I ever satisfy anybody with the answer, and that is that, you know, we -- we conservatively, you know, put in somewhere between 3 and 4 1/2 million homes every year because there is a -- there's a natural growth between cable and satellite that seems to average pretty well in that group. The other thing I would tell you is -- and it's a very similar answer to, again, the way I always answer this, and that is that, you know, for example, we're in negotiations right now to get, you know, 3-and-a-half million homes from somebody that, you know, I think we'll get. Well, you know, I only think we'll get them. I mean, we've been talking to them for quite some time and many times, particularly with the flux of what's going on in the cable industry between the economics and the consolidation, you know, I would think that that would happen. But it will happen only when we sign the deal. So it's very difficult for me to give you a projection of what cable and satellite homes will look like next year, other than the fact that whatever number we put in there is -- is a comfortable number, and then of course the second most important thing is that, you know, the reason -- if you look at our quarter -- last quarter, and you look at, you know, 4, 20 and 35% sales increases month to month -- I mean month after month , you know, we do deserve some sales increases based on the fact that we've been paying for these homes for an awful long time and they are starting to mature and -- and even in difficult environments, when, you know, we certainly didn't do a very good job on this conversion, you know, we can still run a 5 or a 6% comp store and I guess the last two quarters, which have not been great quarters are the first two quarters that we ran comp store increases, so we certainly hope that that will give us a leg ahead on revenue increases going into next year.

Okay. And when you -- when you break down your business and you look at your analog production versus your digital, how do you -- where do you think you're at?

Okay. Yeah. Well, actually, digital -- first of all, we don't have a lot of digital homes and we haven't had a lot -- now, let me separate. I'm going to separate satellite homes as digital.

Right.

From digital homes that are coming on through the cable carriers, right? And then analog. So I mean there's three different kind of categories. The newest being the digital homes we're getting from the cable guys.

Okay.

If you look at the productivity of -- of satellite, satellite is still approximately half of analog. And then if you look at digital, which is where there is an enormous opportunity for growth in digital homes, we haven't had digital homes on for an extended period of time, and of course we don't pay near the price for a digital home that we pay for an analog home, and we don't pay, in many cases, at all for a digital home where there's any crossover to analog homes that we have. I would hesitate to project what the digital home is going to be worth but I would tell you that it's worth at least in the first few months it appears to be worth a lot more -- excuse me, a lot more than we thought it was going to be. But it's just a little too premature for me to give you a sales per home number projection on new digital homes coming on.

When you look at your maturity factors of all these homes that you've put on over the last couple of years.

Right.

I mean are you seeing maturity slow or -- where -- are they analog homes or --

Yeah, analog homes, you know, generally give us the best performance. Although we have been pleasantly surprised with the performance of -- of Echostar, which is a very small percentage of, you know -- of who we are. But analog homes are the ones that provide us the greatest growth opportunities.

Okay. Thank you.

Our next question comes from Harvey Eisen. Your line is open and please state your company name.

Good morning. Bedford Oak Advisors.

Good morning, Harvey.

I actually have a financial question, strange as that may be to this telephone call. Where are you on the share repurchase?

We have -- go ahead, Dick.

I was going to say relative to the previous authorizations, which were $50 million in total, we have spent 48 against those, so I have $2 million left. And then, of course, just had another authorization approved by the board last week.

So you are continuing to repurchase shares?

Correct.

And is there any reason to assume that if you get this authorization filled, you wouldn't continue, given your free cash on the balance sheet?

Yeah, there's no reason to think that we wouldn't pursue that, Harvey.

Do you have other uses for the cash?

Well, let me -- I mean, I'll make -- I'm going to make a statement. I'd like to qualify this in a way, before I make it. Somebody called me the other day and asked me if -- you know, where we were on the -- on the authorization and whether or not we were going to -- and their specific question was were we planning to spend the new $25 million immediately. I mean -- and in conjunction with that -- I don't know if that's where you're -- what you're getting at, but let me just say that, you know, from time to time, either we initiate discussions or other people initiate discussions with us that cause us to take a look at whether or not it's prudent or proper for us to continue in the marketplace on a share repurchase, and I think it's fair to say that we're -- we're in -- in -- in such a process at the moment. But I don't want anyone to read into that any more than what I'm saying. And what I'm trying to say is that from time to time, people contact us and from time to time we contact other people, and it is -- there's nothing that would say that things come out of that, if you know what I'm saying. I mean, it's -- but we are -- we are probably in that period right now, and -- but other than that, it is our intention to move forward with share repurchase.

Okay.

All right?

Second question -- do you get a second question?

Sure. You do.

What about -- what's your take on the Comcast/AT&T deal? Does that help you? Hurt you? Affect you?

I think that, you know, we constantly have discussions with these folks. We're not exactly sure at this point exactly what that is going to do for us. We have today a few million homes with I think the actual number is probably a million two or three, Dick -- is that correct? -- with Comcast?

That's correct.

And we have approximately 4 1/2 to 5 million homes with AT&T. And as you know, they'll probably have 23 or 24 million homes when they're done putting this together. It's difficult for me to answer your question. I mean, we -- we remain in discussions with them and, you know, it will -- it will turn out, Harvey, how it turns out but I don't know how to better answer than that.

Well, not being a home shopping maven--.

Right.

-- obviously QVC has their own business.

Right.

So does -- how does that factor into the equation?

Well, how does QVC -- you mean from the standpoint of Comcast.

Right.

Right. Well, you know, that has been a difficulty for us in -- in my view, for a long time.

Right.

And, you know, whether or not there are ways around that and whether or not the -- the interests that we have and possibly the -- the interests that NBC has, you know, with Comcast or potential interests they may have, you know, we kind of throw it all in the pot when we talk to these folks about, you know, whether or not we can strike a carriage deal. But that clearly has been a problem for us in the past, to get additional homes on Comcast.

Right. Well, that's why the common-sense question is --

Right.

-- AT&T now being part of Comcast.

Right. And as I said, you know, we've got 4 1/2 to 5 million homes. I have personally met with some of these folks to determine whether or not there's an opportunity for us to do something innovative to -- to be able to get carriage on these channels, and, you know, it comes out when it comes -- you know, I don't -- I don't know the answer to that yet.

Okay. Well, I mean obviously we're all concerned if they were to not want to continue.

Sure. Absolutely.

I guess my last --

I have no reason -- by the way, I have no reason to believe -- okay?

Uh-huh.

-- that anything we do today will not continue, okay? I mean, I was talking about expanding it to a great degree going forward.

I know.

Okay. All right. I just wanted to --

Right.

Right.

That's what makes markets change.

Right. Exactly.

Final question: NBC, I keep seeing NBC pushing lots of product in lots of different ways. I was trying to get out of the rain the other day and I walked through the NBC store in Rockefeller center --

Right.

-- got all this product. Is there any reason to think that you guys might expand what you do with NBC? Given your ownership?

: Yeah. Let me -- a couple things. And it all depends on -- I don't know how big they'll -- this will be but first of all, you know, we open up in -- we're going to open up a store in the NBC store in New York, for example, a ValueVision shop NBC store. We just started a few months ago every second Saturday having promotional spots on NBC during the daytime programming that pushes folks to our channel, if you will, on Saturday mornings where we actually bring in daytime celebrity stars and do programming with them on our channel, promoted by NBC, on Saturday mornings. We now support all of the dot com sites for the NBC ONOs and we do the commerce for the dot com sites for the NBC ONOs. We have a number of projects that we're discussing with NBC that we actually have tested some 30-second spots in some of the ONO markets. We're taking a look at whether or not there are different shopping formats that we can put into -- I wouldn't say prime time but into NBC ONO air time, to see if there is a way -- and I wouldn't say that we'd just put the shop NBC shopping format onto an NBC ONO. It would have to be something that was more entertainmentoriented but we are looking at that as well. So we're in a lot of discussions. We're trying to figure out how best to get NBC and ShopNBC to work better together. One of the things that, you know, has been an impediment in the past has been that we -- you know, we didn't have enough carriage, frankly, for it to be efficient to advertise on NBC, and I think that in our discussions with Andy Lack (ph.) and David Zaswoff (ph.) and that group, that we think that's changing.

Well, one of the things I've noticed on a handful of television shows is at the end of the show, they talk about products that can be purchased.

Right, right. ABC does that, and, you know, they feature the product that's on there. If you like so-and-so's wedding ring and things like that, go to X amount dot com. That's kind of what we're doing now on Fridays with NBC and we're actually running 30-second spots that says -- that say go to ShopNBC on Saturday at 12:00 and we actually put a full-hour show on with those soap stars live on NBC. And I-I mean on ShopNBC. So I think it's I don't know how successful, by the way, that go to ABC.com and buy this ring is, but I will tell you that we've had some great success on Saturday mornings with the daytime soap appear what stars doing something similar to that, if you will.

Well, I mean, we're beginning to see a trend of product companies paying lots of money to --

Placement.

-- various -- yeah, exactly. And so you don't have to be a Harvard business school graduate to figure out that maybe they're doing it because they think they can sell more products, so if somebody likes a particular show, star, role, whatever, and they're interested in --

Yeah. And we're actually starting -- we've put -- you know, we've put some of our on-air talent onto the other half. I mean, we haven't made a big thing out of it because we're still trying to find what is the best way to do this, but, you know, we've got, you know, like Lynn Shocker (ph.), who is one of our on-air talents, is -- has been on the other half a number of times doing shopping segments. You know, we -- you know, you probably know who Rebecca Coals (ph.) is. She has a syndicated television show out there. Called Rebecca's Garden. Rebecca's Garden is syndicated across the country by NBC syndication, and now Rebecca's -- Rebecca Coals does a show with us on ShopNBC once every two weeks and on the Rebecca's Garden syndicated show around the country, we actually put promotional spots on for the ShopNBC Rebecca Garden Show, so you're absolutely right. I mean everybody is trying to figure out how to get commerce out of network and cable television, other than the traditional shopping channels and we're pursuing that. In fact, we just -- we have a senior officer that we put into New York just within the last year that works on that almost full-time.

Well, you're nice to take the time. Can I just ask you one more -- promise -- last question.

Sure.

Okay. What did you think of the descriptions shot at home -- scripts shop at home deal?

I think it probably --

I mean big company buying little company.

Yeah, I think it kind of reinforces your previous question about, you know, here are -- here are people out there with content that has ability to have a commerce element to it, and I think that there's been -- I believe there's been a -- I think "disappointment" is the right word. I'm not addressing this to scripts particularly but disappointment in the network and cable companies' ability to do what you're saying. In other words, you know, these people like me so maybe I can sell them something during a 30- or 60-second spot and I think that the scripts deal is, you know, somewhat indicative of somebody who says I own a lot of cable channels, they look like they have great commerce capability. I don't know that I can do commerce on my cable channels, but the cross-promotion between my cable channels and the commerce channel looks like it might be pretty good. And, you know, I think -- I think it will be interesting to watch. I mean, they have, you know, shop -- what's also interesting is that, you know, the foundation of many of these shopping channels, including ours, even ours to a greater degree, has been jewelry. And, you know, the foundation to shop at home has not traditionally been jewelry. You know, it's been a male oriented viewership and it will be interesting to see, you know, how they move through that process. But, yeah, I mean I watch it with great interest.

Thanks for taking the time and--

Thank you very much.

-- answering the questions.

Thank you.

As a final reminder, if you'd like to ask a question, please press star 1. Our next question comes from Esther Chao (ph.). Your line is open. Please state your company name.

I'm Esther from WaveMark (ph.). I was just wondering, can you talk about the television sales per full-time television subscriber, and your outlook going forward, comparing that to internet sales?

: Okay. It's pretty difficult to break out television and internet sales. I mean we break them out. Don't misunderstand me. But I think it's fair to say that the internet does not function well without television. And what I mean by that is, the internet sales are directly related to the amount of time that we spend on television promoting back to the internet. So, you know, when you look at the -- when you look at, you know, $25-plus million dollars in internet sales in a quarter, or, you know, a projected hundred million dollar internet business as a percent of total, it's -- it's very difficult. I mean some people say, well, you know, the internets -- some of our competitors will say the internet is either 7 or 13 percent of my business and in your case, Gene, you know, the internet appears to be, you know, 20% of your business, or a higher percentage than others, and I think it's because we try and utilize the internet more than they do. So I really -- which is why we don't really like to -- I don't -- it's hard for me to break out television productivity versus internet productivity because we spend so much time on television moving people to the internet. I mean, when we're not having a good hour, if you will, on television, I mean we have a process in place that actually deals with moving people to the internet maybe be -- you know, for a more diverse assortment of products.

During certain categories of business that are on television that television can't do a very good job, if you will on assortment, like watches and things like that, you know, we push people to the internet because we can only show one or two watches at a time and of course on the internet you can see 50, a hundred, a thousand watches. So, you know, we kind of maintain our sales per home in a -- from a total standpoint, and we -- you know, we generally say that our sales per home are, you know, $20 for cable and $10 for satellite and when you look at the balance of satellite and cable that, you know, we come out in the 13 or $14 range and we really don't try and take pure internet sales out. I really don't -- I wouldn't know how to do that.

Okay.

All right?

All right. Thanks.

Thank you.

Our next question comes from Carlo Canal (ph.). Your line is open. You may ask your question, and please state your company name.

Yeah. Canal Capital (ph.). I have some problems with my phone, so --

Okay.

-- if you can't hear me, just ask me to speak up.

No, it's coming up fine.

Okay. A couple of questions. When will you be providing guidance for next year?

Probably in a few weeks, Dick, right?

Well, generally we do it with our fourth-quarter release, Gene. I guess that's a question [internal will] have to take up as to whether we do something prior to that.

Yeah. We'll -- you know, sometime -- sometime in the next 4 to 6 weeks, probably.

Okay. Regarding the snafus with your software vendor --

Right.

-- can you give me some feel for how many days it takes to fulfill an order today versus, I don't know, at where -- when it was the absolute worst?

Oh, sure.

A couple months ago?

Well, yeah. Let me tell you what it was. I mean, what we did a few months ago was a couple things happened. Not only was it fulfilling the orders, but we actually had difficulty taking the orders on television. So that there was a combination of problems. And what happened was that we rely on real time inventory visually -- visually available to the on-air hosts, so that they know when they're on an item for three or four minutes, either that item is selling well or the item is not selling well. And they see sales, they see on-hand, and if the item is selling very well, obviously they can move off to the next item. So we, in many cases, in many hours, and in some cases for a half a day, lost our ability for real time inventory and sales data, which caused us not to be able to even take the order. That's number one. Then number two, we never had a great deal of difficulty in shipping the order, and I'll qualify that in a minute. Our difficulty was, after we shipped the order and we tried to service the customer, number one, the invoices that went out to the customer explaining to them what they had been billed and what they had purchased were different than the invoices they were used to receiving. So they immediately created a -- they immediately created a large problem with telephone calls. Number two, we did not have the ability to process returns, and in some cases people that sent merchandise back were not credited with their returns for weeks at a time. And normally, the process is, with merchandise on hand, which is about 85% of what we sell, merchandise on hand, if you buy it today, we -- we usually have the ability, other than on a Friday, to ship it to you out our door within, you know, 24 hours, 36 hours, day-and-a-half on the high side. That's where we are today.

Pardon me.

Yeah.

Drill down a little deeper.

Yeah.

And pardon my naiveté.

No, no, no. I'm sorry.

Does but does the company receive a -- like a put-through fee and it goes directly from a Brookstone or from the merchant or does the company, you guys, actually take possession of this -- of this merchandise.

Okay. Now I gotcha. Now you're on the third-party guys, like Brookstone and Bose and people like that?

Correct.

We actually -- no, we don't take -- we don't take possession of that product at all. We actually -- we kind of serve as a middleman. And those calls, like to Bose. I mean those calls actually go to Bose, not to our 1 800 line and they actually service the customer and all customer service is done through Bose. And we receive a fee from Bose for that hour's worth of television. And in the case of Brookstone, it's a similar arrangement from the standpoint of customer service. We never take possession of any of those goods.

Did the software snafu extend to the third-party merchandise?

It didn't -- it did not affect the back end of third-party merchandise because they do their own back end. What it affected was, in many cases, our ability to take orders on the air.

There was also some issues of transmitting the orders and getting order -- shipping confirmations back. Those have all been resolved now.

Was this Oracle the -- the company?

Yes.

Is there any litigation, is there any possible reimbursement or any concession at all?

Yeah. Well, let me just, let me not, hone in on Oracle and I'll tell you why. I'm going to be vague for a minute and then I'll get more specific. There was three companies involved in setting up the conversion process. I would say to you that probably Oracle was, while the most visible, was not necessarily the one that we spent the most money with, because this process has gone on for, you know, almost two years. I mean, first we -- we did our financial conversion, which went through without a hitch, and then we probably spent another 15 months getting ready to do the Oracle conversion then you bring teams of people on, you know, to get their systems, their software, you know, set to be able to do what you need it to do, and a lot of that broke down. Now, to answer your question specifically, yes, we are -- we believe that we have an opportunity to go after some of these companies. We hope it wouldn't end in litigation. We'd hope we'd end up with some kind of a settlement. But before the end of the year, we have decided and have put in place a process to do that.

Okay. And it would seem to me that this business is very sensitized to the supply chain and maximizing the productivity of your systems.

Yeah.

What systems are deployed by your competitors? Do you know anything about their --

Yeah, we do, yeah.

Are they -- do they also use Oracle?

No. Well, one -- one -- one company does use Oracle, but most of the systems that are in some of these other companies are systems that have been built upon over the last 20 years, if you will. I mean, as opposed to a flat-out conversion. We were on a Sigma system at our company and, you know, just for a minute of background, you know, when it was built -- when I joined the company four years ago, you know, television sales were about $88 million, and there was no internet sales. So I mean, you know, now our internet sales are bigger than that. And we were not able -- the judgment was made -- I mean I guess I could second-guess this now but the judgment was made that we couldn't build upon the Sigma system to be able to handle, you know, the out years. So we made the decision to have a full conversion. And our competitors, for the last 20 years, have been doing it gradually from a base that obviously was able to be built upon, and we thought that our Sigma system did not have the capability to be able to handle us going forward.

Okay. One last financial question. Under what blackout, if any, is the company restricted from re-purchasing shares?

Only -- well, during the blackout -- Dick, you have the exact dates that we're under the 10 --

Yeah. I mean from the standpoint of insider trading rules, which we also apply to our buyback, we went into a blackout period about the middle of October, and that will expire two days after today, which is the release of our results.

Okay. Great. Thank you. I.

Okay. Thank you.

Our next question comes from Dan Perla (ph.). Your line is open. Please state your dough company name.

Centurion Partners. I noticed that inventory year over year looks to be, if I'm doing my numbers right, about twice -- in excess of the rate of sales growth. You alluded to the fact that you saw some weakness in higher-margin stuff like jewelry. Does that suggest that there's sort of some level of excess inventory in some of these soft goods, like jewelry, and if so, to what extent do you have plenty of time to work it through or to what extent might you carry that over past Christmas?

Yeah. We -- from an inventory standpoint, we ran into this Oracle thing, bumped our inventory up about 22, $23 million last quarter, higher than we would have liked, and we were able to reduce that from quarter to quarter since we got back on track by about $10 million.

Okay.

And we would expect that by the end of next quarter -- by the end of, excuse me, the quarter that we're now in, rather than give you a number, I'll give you -- you know, we would like it to be at about 8 -- about eight times it's cost turn, which is what we try and manage to.

Where is it roughly now?

Well, it's probably at 6 1/2.

Okay.

6 1/2 to 7. So we want to take another turn out of it during this quarter, and all of our vendor purchases consider 25% of all of our sales -- I say 25. I mean, there's some 20s and there's some 30s. I'm just averaging. About 25% of all our sales -- not of our sales, of our inventory purchases are returnable. And then on top of that, we have margin guarantees with all our jewelry vendors, particularly, that, you know, kind of works in conjunction with the return. Meaning that, you know, we won't return it if you give us the allocation for us to sell it at a margin that's acceptable to us.

Uh-huh.

So I would expect that, you know, there -- the inventory that we have is not a risk inventory from a markdown standpoint as it would affect margins going forward, and that by the end of this quarter, I hope to have our inventory at 8 turns at cost, which is, as you would imagine, you know, a very good turnover.

But it -- but it is fair to assume that most of that is in -- is in jewelry?

Yes, it is.

Okay.

Yes.

Okay. Thank you.

Okay.

Sir, I'm showing no further questions.

All right. Well, thank you very much, and we'll work real hard to have a great quarter. Thank you.

That concludes today's conference call. You may disconnect at this time.