iMedia Brands Inc (IMBI) 2010 Q1 法說會逐字稿

Good morning and welcome to the ShopNBC fiscal first quarter, 2010, teleconference. (Operator Instructions) I would now like to turn the call over to Nathan Fagre of ShopNBC. You may begin.

Good morning. Today's prepared comments for the conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that these forward-looking statements may involve risks and uncertainties that could significantly affect actual results from those expressed in any such statements. More detailed information about these risks and uncertainties is contained in ShopNBC's filings with the Securities and Exchange Commission.

On today's conference call from ShopNBC, there will be Keith Stewart, the CEO. Bob Ayd, President, Carol Steinberg, Senior Vice President of e-commerce and marketing, Bill McGrath, interim CFO and Vice President of Quality Assurance, and select other members of the Company's senior management. I will now turn the call over to Mr. Keith Stewart.

Thank you, Nathan, and good morning and thank you all for joining us. We continue to make progress in the first quarter across the many leading areas that drive our business, thanks to the innovative efforts and team commitment by everyone at the Company.

Disciplined execution in merchandising and financial planning remained in focus reflecting well controlled inventories, working capital management and tight expense controls. Although sales were down 6.6% versus last year, driven by lower than expected sales in our consumer electronics business, the rest of our business segments met or exceeded expectations. Let me just add before continuing that we have taken corrective action in the consumer electronics business to ensure performance improves going forward.

Now, not only did quarterly trends in new and active customer accounts continue to improve year-over-year, we achieved this positive result while also making tremendous progress in gross profit margin rates in the quarter. The effort helped reduce EBITDA loss in the quarter which is $2.5 million improvement versus last year. In addition, our multimedia retailing strategies continue to appeal strongly with multichannel shoppers. At e-commerce sales penetration performed at industry leading levels nearly 40% of our business, up 950 basis points. Looking ahead, we expect our customer activity and leading indicators to trend positively. We remain excited about our business.

With that, I would like to turn the call over to Bill who will provide financial and operations overview of the quarter, then Bob will discuss our merchandising initiatives, Carol will highlight our Internet performance in the quarter, and I'll close by addressing a few strategic initiatives we're pursuing over the balance of the year to further harness our potential. Bill.

Thanks, Keith. I'd like to now provide an overview of the first quarter financial and operational results, a review of our cash position, and an update on other key balance sheet items. First quarter revenues were $125 million, a 6.6% decrease compared with revenues of $134 million last year. The sales decrease in the quarter was due to significantly lower than expected sales in consumer electronics. This was partially offset by stronger sales productivity in the categories of watches, health and beauty, home and jewelry. Gross profit dollars increased 8.4% to $45.7 million, and gross profit margin improved 510 basis points to 36.6% versus 31.5% last year. This was driven by merchandise margin improvement in all of our key product categories as well as the impact of a lower consumer electronics mix. Net average selling price was strategically down to $108 during the quarter versus $144 in the year-ago period, while our net shipped units increased 23% in the quarter. Return rates were 19.2% versus 21.7% in the year-ago quarter.

The continued reduction in return rates reflects ongoing improvements in delivery time, customer service, quality control enhancements, and our lower price points. Transactional costs in Q1 decreased to $3.54 per unit compared with $4.42 per unit in the year-ago quarter. This is primarily driven by the streamlining in our order entry, customer service and fulfillment operations and systems automation. Operating expenses for the quarter were $54.9 million, an increase of 1.9% versus last year. The increase was driven by higher cable and satellite feeds reflecting increased home count. This was partially offset by a reduction in transactional costs and other variable operating expenses. As adjusted EBITDA was a loss of $4.3 million in the first quarter, compared with an adjusted EBITDA loss of $6.8 million in the year-ago period. The improvement was driven by increased merchandise margin rate.

I will now provide an update on key balance sheet metrics. The Company ended the first quarter with $25.9 million in cash and cash equivalents, including $5.0 million of restricted cash. This compares to $22.1 million in cash and cash equivalents in Q4 fiscal 2009 of which $5.1 million was restricted cash. The $3.8 million increase in our cash balance was driven by a $10.4 million favorable change in working capital partially offset by the EBITDA loss of $4.3 million and capital expenditures of $1.7 million.

In November 2009, the Company entered into a three-year revolving credit facility to finance working capital investment and fund other growth initiatives. To date, the Company has not drawn upon this line of credit. The Company has a current availability of $20 million under the facility, of which $12 million of such availability is subject to meeting certain future financial objectives. That concludes my update. I will now turn the call over to Bob.

Thank you, Bill. I would now like to provide an overview of our merchandising performance in Q1 as well as address our plans going forward to drive the top line, enhance the margin line, and deliver more predictable performance. These are three key priorities. We entered Q1 with a strategy in place to focus on four key merchandising categories that would drive the business, both on the revenue and margin lines. There are watches, health and beauty, home, and consumer electronics. Of the four key drivers, three had excellent performance, meeting or exceeding our expectations. Our consumer electronics business, however, fell considerably short, which adversely impacted total sales for the quarter.

I can assure you that we have already taken corrective action to remedy this deficiency and in a minute I will go into more detail on how and why we are confident in our immediate plans to grow the CE business. Despite the deterioration in CE, tremendous progress was made in the quarter in increasing both ShopNBC's gross margin dollars and our overall margin rates. Compared to a year ago, gross margin dollars for Q1 increased over 8% and gross margin rates increased a very substantial 510 basis points to 36.6% in the quarter versus 31.5%. We are very pleased and very encouraged by these results. Further, the margin rate increase was achieved virtually across the board, in almost every major business. Our margin growth was a result of a clearly defined strategy put in place, and I am confident that our margin growth will continue.

In addition to our gross profit and margin rate improvement, a continuous flow of over 100 new vendors and 35 new programming concepts were added to our merchandising lineup in the quarter, continuing to make ShopNBC more exciting, timely, and a destination retailer. In Q1 we added over 1,000 new products across our platform and revenue generated from reordered products made up 31% of our total business versus only 8% last year. This is another positive trend that will lead to more stable and predictable sales and margin growth in the future, and new and active customer counts on a rolling 12-month basis continued to grow by 48% and 30% respectively. With clearly defined initiatives in place we continue to achieve growth in gross margin dollars and growth margin rates, we expanded into new business categories and we continued to successfully introduce many new vendors and many new show concepts.

I would now like to provide a more detailed overview of the business categories that are driving our business. In Q1, our watch business continued to perform as a major contributor. New and innovative product launches, advantageous purchases and successful sales events helped elevate the business. We achieved increases in sales, gross margin dollars, and gross margin rates. Watches continues to be a healthy driver of our business. The health and beauty category outperformed expectations, achieving an exceptional Q1 performance with sales up more than 50%. Over 40 new brand introductions kept us in the forefront of the industry and resonated with our consumer.

Obviously she liked what she saw, and this business is expected to achieve accelerated results for the remainder of the year. With new customers up 174% we are very confident and very focused on maximizing its potential. In home categories, the business continued to outperform in Q1 again with sales more than double the previous year. Demand in textiles, home furnishings and mattresses drove the top line. New customer counts were up 170%. In addition, already strong margin rates continued to increase, and gross margin dollars more than doubled that of the previous year. Going forward we're continuing to secure new national brands that will drive top line and increase our position as a retail destination for home product. Conversely, performance in our consumer electronics business was absolutely unacceptable.

The sales deterioration in this one category offset all other sales increases for Q1. We did not offer the customer product nor a variety of brands that delighted them. We didn't offer enough new product in a category that is all about new. We've already taken corrective steps and are highly focused on immediately turning the business around. We have new leadership in place with multichannel veteran Rod Ghormley joining us late in Q1 as VP of Home and Consumer Electronics. Previously Rod served as Senior Vice President and General Manager for Shopco's home division and held executive merchandise positions at Amazon, and I had the pleasure of working with him at QVC. We are already seeing major improvement and we are rapidly on-boarding new brands and building a broader product assortment in this category for marquee names like LG, Sharp, Toshiba, Samsung, Mitsubishi and many others. We are confident in our strategy and our plans to immediately return this business to being a strategic driver for the Company.

The jewelry business showed signs in Q1 of starting to turn around, which is sooner than I had expected. In doing our 2010 sales plan my assumption was that jewelry would probably remain soft to negative for the year. In Q1, however, new customers were up almost 24% driven by key sales events and our gross margin rate for the category improved almost 10 full percentage points over last year. Despite a sales decrease, which was anticipated, gross margin dollars actually achieved a respectable increase. Strong demand for gold and diamond products as well as the addition of new concepts helped drive demand.

To continue the momentum, we strengthened the jewelry and merchandising team by appointing Scott Garozzo as Director of Jewelry. Scott served most recently as Senior Vice President of Merchandising and Product Development at Simmons Jewelry Company. Prior to Simmons he held merchandising positions in the jewelry category at QVC and Lord & Taylor. And finally, our fashion business, which is our smallest business, is in a repositioning phase. It experienced a slight decline in sales in Q1, not unexpected, but we were able to see success with new brand launches that included Ed Hardy and Adrienne Vittadini. What's very promising is that new customer counts increased more than 200% in Q1 and we achieved a slight increase in the categories already healthy gross margin. I expect to announce shortly that a fashion industry veteran with whom I worked with for many years will be joining the team and will be a talented and welcome addition.

So in closing, we're generally pleased with our merchandising initiatives in the first quarter. We achieved strong category sales, drove impressive margin improvements, increased reorders and added more great brands to our lineup. We accomplished what we said we would do clearly with the exception of the CE business, which is being corrected. Entering Q2, our inventory position is clean and we're managing inventory levels very tightly through disciplined planning and financial analysis. We're continuously identifying proven product that make for strong reorders and placing those reorders without delay, especially in the watch and jewelry businesses, which give us a big kiss on the gross margin line.

This process allows us to reap the rewards through maximizing gross margin rates and increased opportunities to drive incremental sales With clearly defined merchandising strategies in place we are excited about all of our businesses, and in particular our jewelry business because it is showing signs of turning around faster than anticipated. Our merchandising organization is stronger with key additions in home and jewelry as we mentioned earlier, and looking ahead we're very confident in our execution capabilities to deliver on the three priorities of driving the top line, enhancing the margin line, and delivering more predictable performance. With that I will turn the call over to Carol.

Thanks, Bob. I would now like to provide an overview of our Internet performance and highlight a few key on-line metrics. As we operate more and more like a multimedia retailer, e-commerce sales penetration was nearly 40% of the total business in the first quarter. That's up 950 basis points versus last year driven by strong cross-channel promotions on our TV, our on-line marketing efforts and our participation in mobile and social platforms. Net sales in the quarter increased 23% to $49.5 million versus $40.3 million last year.

Our gross margin dollars increased 37% in Q1 to $18.5 million compared to $13.5 million. Our conversion rates were up 230 basis points to 11.5% versus a 9.2% over all of last year. And, the volume of on-line orders was up 55% in the quarter compared to last year. Our web traffic remains strong with a 7.2% increase in unique visitors and a contribution of 36% to total Company new customers. Going forward, our on-line and emerging channels will remain a powerful growth engine for our business as we broaden our on-line product mix and add new suppliers across all categories to strategically appeal to the multichannel shopper so they can shop any time, anywhere. That concludes my update. I will now turn the call over to Keith.

Thanks, Carol. Before concluding today's prepared remarks and taking your questions I would like to address some key short-term initiatives we're pursuing through the balance of 2010. To manage change our Company is undergoing in order to drive top line and deliver sustained profitable growth. These initiatives are critical to further harness our potential while building on the foundation of our five-year strategic plan to double the size of our business. First on the list is a trademark licensing agreement with NBCU. But, before we get into that I would like to address the news issued today by NBC regarding their plans to sell their shares in our Company.

Last Friday NBC indicated they wanted us to register all the shares they own in our Company, which is roughly 6.5 million, in connection with their plans to sell those shares. They said that TV retailing is no longer part of their long-term strategy, and as a result they decided to sell the stake in our business. We've had a successful 11-year long business relationship with NBC and we wish them the best of luck going forward. Now regarding our trademark licensing agreement with them. As you know, our 10-year licensing agreement expires May 1st, 2011. Because owning your own brand is critical to controlling your future success, and in light of their decision to not have TV retailing be part of their long-term strategy, we've decided not to extend the licensing agreement, and we will be rebranding our business. In anticipation of this potential development, we've been working with an outside brand consultancy for the past eight months about rebranding our business. We have a short list of names.

The strategy is to subtly begin the rebranding to the customer this summer. The gradual transition will start in the on-line world, off the core TV channel. and begin in the social media space. From there we will evolve it to our website. We'll get the feedback from our customers on collaboration, brand look, and so forth. Then we'll take it to the TV channel and conclude the rebranding by February of 2011. Well before the expiration of the license. We're excited about this upcoming change in our brand landscape and we expect strong buy-in from the customer to ensure a seamless transition. The second strategic short-term initiative, we're focused on to further harness our potential to address the increased volume of net shipped units. In 2009 as we broaden customer appeal through an expanded merchandising mix and lower price points, our net shipped unit volumes soared and was up an incredible 47% for the year. In Q1, the velocity of our net shipped units continued on a similar trajectory up 23%.

We're receiving more inbound orders on the phone and on-line while product is being fulfilled and shipped to the delight of the base of one million customers. In order to meet this growing demand, we've clearly defined strategies in place to drive incremental productivity and process gains to our operating and fulfillment infrastructure. We continue to fine-tune our inbound order capture process through funneling more orders to the web and use a automated ordering while tightly managing staffing levels. As customer satisfaction indicators continue to improve, customer service contact rates are being reduced through systemic improvements resulting in dramatically lowered call lengths. In fact, year to date call lengths are down over one-third.

We have a robust call capacity with respect to capturing orders, and we have expanded our logistics and fulfillment capabilities to move more products both quickly and accurately out the door. And the good news is, as we continue to drive down our transactional costs, we're able to implement these innovative enhancements to our capacity and capabilities with very little investment to our infrastructure. Three, a key strategic driver to our success is a strengthened merchandising organization. Bob joined us as President in the beginning of Q1. He clearly hit the ground running. In his short time with us, he's made a dramatic improvement to our merchandising organization. Most evident in the increased gross margin rate.

Amazingly is that he accomplished this in a time line that wasn't anticipated until year three of our strategic plan. In addition, he was able to quickly recruit a new head of consumer electronics business, in Rod, to reverse the poor performance of that segment in Q1 Bob also broadened the strength of the jewelry team with a key new hire in Scott, to fast-track the early signs of this segment's turnaround. Bob not only knows our business, but he knows the people who can drive it. And so it's safe to say that all our merchandise business units are being led by strong industry veterans with proven track records of success in multimedia channel retailing space. Going forward, we're also focused on building bench strength in these teams and where appropriate, adding highly capable merchants to source product that feeds our growing customer demand. Lastly, since our culture is all about the customer, we expect our customer activity to continue trending positively through the course of the year.

Our nationwide broadcast distribution into 76 million homes functions not only as a scalable transactional medium but also a 24 X 7 advertising network for leveraged multimedia marketing across all digital platforms. Our e-commerce business and shopnbc.com will continue to benefit from cross-channel promotions, from our core TV channel we'll leverage on-line video content driving conversion rates and providing a differentiated on line user experience for the Internet shopper, and we'll continue to drive new customers and repeat purchases through an ever expanding on-line product assortment across all our categories.

As I have said before, this web utilization strategy not only drives the top line, it also lowers our transactional cost per unit order which impacts our EBITDA line a true win-win for everyone. Let me conclude by saying that I'm extremely bullish on our future plans and our ability to deliver on the expectations of our shareholders and stakeholders alike. We certainly appreciate your time this morning. Thank you very much. And we will now take your questions.

Thank you. (Operator Instructions) Michelle [Graph], National Jeweler, you may ask your question.

Yes, I just had a question on the -- you said the 10-year trademark licensing agreement. Did you say, I'm sorry, that expired in May 2011?

That's correct, May 2011.

Can you expand at all, I know you mentioned jewelry was surprisingly strong for the down in first quarter. Can you talk a little bit more about your merchandising initiatives in jewelry and watches going forward-- what product categories you're looking at, price points, and what kind of things you're looking to bring on board.

Sure, this is Bob. Without being too specific, clearly we were very, very surprised by the results in jewelry, although clearly not where we want it to be, I do see very clear indications that it's turning around, and it goes from gemstones, very strong in gold, and plating, and the real strategy here is to bring on exciting new concepts and branding that will delight the customer, and that's what we're going to do, and we think that will positively move the business. Our watch business has been strong and remains strong.

Can you talk a little bit -- are you talking about bringing on semi fine jewelry, like gold plated with semi precious stones, or --

I'm uncomfortable discussing the specifics of our merchandising strategy on an investor call, because it is somewhat proprietary, but clearly we have a strategy in place, and I'd rather not go into more detail than that.

Okay, thank you.

(Operator Instructions) Don [Zupanac,] you may ask your question.

What are your future plans for your health and beauty segment as far as skin care products are concerned, and what kind of an outlook do you have on that?

I'm sorry, what was the last sentence? This is Bob.

I'd like to know what is your outlook for your skin care products and your health and beauty segment. What do you offer the consumer on ShopNBC versus other retailers?

We always look for points of differentiation. If I could just start-- we feel our health and beauty business will be explosive, and the results for the first quarter indicate that.

I'm very confident that it will continue to, and I think we'll -- what you really want to do is offer differentiated product at great value that delights the customer that can be very demonstrable. So our initial results in skin care have been of, very strong, and we will be on boarding many new brands in the next quarter -- actually, for the balance of the year at this point. So we're very, very focused on this category, very pleased with the results, and I think this is going to be a key driver of the business for years to come.

Thank you very much.

Robert [Rouse,] you may ask your question.

Yes, good morning, guys. First, given what's going on in Europe, and now with some of the other home shopping companies, people are concerned because a lot of their operations or their e-commerce, (inaudible) what the euro is doing and the economies over there.

I know you guys don't have any TV operation there but given you have an e-commerce presence that's growing could you give a sense of what percentage of any of that is coming out of Europe and what you see there going forward as far as what's happening there and how that could impact home shopping? Then if you could talk about the TV station you guys still own in Boston and what you plan on doing with that, going forward. (inaudible) probably get no value for it..

Robert, Keith, thanks for your question. We really don't have any business, so to speak, that's certainly material in Europe so does it not affect our short-term business endeavors. I'm certainly not an economist. I can't forecast what is going to happen in Europe. I'm sure is you're better suited than I pertaining to that forecast. As it relates to our domestic business we continue to see strength in our dot-com penetration.

As Carol mentioned on the call, Robert, it is industry relating very close to 40% penetration. Sales growth was certainly leading the industry and we'll continue to focus on growing that business. As we grow a multichannel platform that will continue to increase, the overall lifetime value of our customers, and pertaining to our Boston TV station, it is certainly a nonstrategic asset. It is planned at some time in the future, not short term, because of the market today, to sell that TV station.

Currently, Robert, the market, the commercial real estate markets is not as such where we should be selling for large, large loss. We're much better being -- better suited being patient and waiting until that commercial real estate market bounces back. To realize full value on behalf of our shareholders. and stakeholders.

Okay. great. And just two other follow-up questions. As far as your rebranding initiative, which certainly makes a lot of sense because I don't think people think of NBC and shopping, they never really, did but are you going develop your own brand or are you looking to possibly partner with someone else who has ally solid brand that may want a TV presence? I'm thinking there are probably a lot of dot-com companies that would love to have a home shopping that fits in.

I don't know if you are considering eBay or Amazon or (inaudible) and whether you are going to create an internal brand for that and then if would you comment a little bit about the industry in general what you are seeing, because Majestic comes out with research all the time, and supposedly they said April was kind of weak for home shopping companies. I know we're lapping easy comps in the industry for last year. I'm curious as to what your thoughts are about domestically what we should be looking for in terms of just overall industry growth over the next couple months.

First of all, let me address the brand, in that the process I think is very important. it's been very thoughtful and methodical, and as I mentioned on the transcript, we've been working with an outside consultancy for the last eight months. The transition will be very slow. It will be feedback-rich from our customer. We will respond to the customer and we will work for a seamless transition.

Now, I firmly believe, Robert, that it is incredibly necessary and critical for management and the shareholders and stakeholders alike that we own the brand, so we have the ability to control the brand, and we have the ability to expand internationally if we like. So to the extent that we go through a licensing opportunity in the future, and we are obligated to renegotiate terms with another company, it would be very, very difficult to maintain control of the brand in the future. I think the only prudent and responsible thing. So that's pretty much the conclusion on the brand piece. Could you repeat the second part of your question?

Yes. In terms of the overall industry, a lot of independent research firms have come out and said that home shopping in general in April was down year-over-year, and a lot of investors are skittish about look and seeing is, well, if April is down, May, June, July, it's usually the same thing. I'm curious, as to what you expect given that we are lapping an easy year from a comp perspective, because the world was falling apart May, June, July last year, what do you guys see macro level for the opportunities for the home shopping industry now and going forward just the next couple months as we continue to lap this easy year, just in terms of everything in terms of the overall business? You think it's -- is it easy comps? Or is it really a tough environment that we're seeing because of Europe and other things at the moment?

Robert, as it pertains to the other two companies, I would ask to you refer to them as it pertains to their comps. As it pertains to ShopNBC, the opportunity to grow has nothing to do with comps. Our sales per home is $7 per home, where our largest competitor is $58 per home. To hit the sales plan of doubling the business over the next five years, as I indicated in the earnings transcript, we only need to get to a penetration of 2% from our current level of 1%, not even close to the 8%, so as far as the runway, the short and long-term runway, for ShopNBC, I am very bullish.

We also have tail winds that are supporting all three of us from the context of the continuing growth of the dot-com business. The dot-com business, like our television business and others, are founded upon trust. after all, they're long-distance relationships with the customer and as the consumer continues to adopt dot-com as a transactional vehicle to purchase their discretionary goods, that will only help and assist us in accelerating our growth.

Great, thank you very much.

Thank you for your call, Robert, for your questions.

Wilson [Yeagley], you may ask your question.

Thank you, good morning all.

Good morning, Wilson.

Bob, some questions here for you on the merchandising side, just a quick reference. $108 is average selling price this quarter. what was it last quarter?

$144, Wilson.

$144. That was a year ago. what was it in the fourth quarter?

Fourth quarter was $92.

$92. Okay. What are the dynamics -- I know the strategy here is to lower the average selling price. what were the dynamics that actually drove it up this quarter?

Mostly merchandise mix, and I think you will see the average selling price as we develop other businesses, continue to come down, but watches was particularly strong, and watches has a higher ASP so the ASP last quarter went up. As we develop other businesses, I think you'll see the ASP continue to go down.

Okay. You mentioned the changes in personnel, do you basically have in these focused categories that you talked about today , do you have the senior management in place in charge of all those categories except I guess for

I think we do. I think we have some wonderful people. When I came here I was lucky enough to work with a talented group. I was able to bring in and add few extra people that we talked about, but I'm very confident in our management.

So you've got the people in place now.

I think we do, yes.

Consumer electronics, which you talked about a bit here, to clarify, you mentioned some very strong Asian brands in here. LG, Samsung, Toshiba, Mitsubishi, are these new brands for us, or are these brands we've had all along but we're just having different products from them?

Actually, it's a little of both. In every case, if we've had them in the past we now are expanding our assortments from them, and in a couple of instances there are new introductions and more introductions that I'm anticipating but can't announce yet.

Okay. I know you're reticent to talk about price points or specific product that will you be introducing here. What specifically are you changing from what we had in the quarter that you're disappointed with? In other words, is it price points here? Is it just old merchandise that -- older products that are not appealing to the consumer because they've been in the marketplace too long? Help us with that, if you could.

Now, is this question specifically for consumer electronics?

Yes, please.

Okay, I think the biggest issue with consumer electronics is clearly we didn't offer the breadth of product that delighted the customer. So the first challenge here is to listen to the customer, expand our assortment, expand our vendor structure. It's not about price points, but it's more about value. We launched a 3-D TV. I believe we were the first TV retailer to do that, and did it very well. And that was new and exciting. So I know customer is watching. I know if we have the right product the customer will embrace it. So we have a different strategy, a more comprehensive strategy and already we're seeing very positive results.

Thank you much and congratulations on your other categories which I'm sure you;re a lot happier with.

Thank you, Wilson. Just to expand on the-- one final point on the ASPs, we we do plan to drop our ASP at the end of the year to the area of $75 to $80. it will moderate through the rest of the year. And once we get there, we plan on leveling off.

Thank you.

Bob Green, you may ask your question.

Hi, good morning, everyone. I have two questions. One is can you elaborate on what you might expect in terms of your stock price when NBC does sell the 6 million shares that they own?

Mark, I really am bad at reading the tea leaves. I have no idea. it will create some short term pressure on the stock. I think that's certain to all of us. As I indicated before, it's an 11 year relationship with them being (inaudible) and we're very pleased to have the opportunity to work with them and certainly wish them the best of luck in the future.

Okay. And then an operations question, I know that you had said that -- or I believe Bob had mentioned that health and beauty category was one of the stronger categories. Does ShopNBC have the legal staff in place to comply with government regulations as you increase in that business it seems to be a common theme in terms of FTC compliance with claims and issues in that department.

Mark, you have really hit the nail on the ahead. It is critical that we have a correct infrastructure, not just from a legal perspective but from a quality assurance perspective for health, beauty, and other product categories. Nathan Fagre who's on the call today, is our general counsel, has internal infrastructure in place to support any necessary claims that we have moving forward.

We are certainly very conservative in our posture as we look at this business, very sensitive to the risks associated with that. We believe it's not necessary to make outrageous claims to be successful in what we're doing. The products that we offer are very, very high quality, they have certain clear benefits to the customer that are demonstrable, and really don't require outrageous claims to be successful.

Thank you very much.

Mark, thank you very much, and everyone else, thank you very much for your time today. We look forward to speaking with you next quarter, and with that I will conclude the call for today.

Thank you. That does conclude today's conference call. Thank you for participating, you may disconnect at this time.