Interparfums Inc (IPAR) 2006 Q3 法說會逐字稿

Good day everyone and welcome to the Inter Parfums third-quarter 2006 conference call. At this time, I would like to inform you that this call is being recorded and that all participants are currently in a listen-only mode. I will now like to turn the conference over to Mr. Greenberg.

Thank you, Operator. Good morning and welcome to our third-quarter 2006 conference call. If you have not received a copy of the press release we issued yesterday afternoon, please contact Linda Latman of the Equity Group, at 212-836-9609 and she will fax or e-mail a copy to you.

Before proceeding further, I want to remind listeners that this conference call may contain forward-looking statements which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results.

Such factors include continuation and renewal of existing license agreements; effectiveness of sales and marketing efforts and product acceptance by consumers; dependence upon management, competition, currency fluctuation and international tariff and trade barriers and government regulation. In addition, and with respect to our reported agreement with Gap Inc., such factors include approval of new products by Gap and sales and marketing efforts of Gap Inc.

Given these uncertainties, you are cautioned not to place undue reliance on the forward-looking statements. Additional information concerning factors that could cause such a difference can be found in our filings with the SEC.

As many of you know, our European operations, which are conducted in France, primarily represent sales of prestige brand-name fragrances and our United States operations primarily represent sales of specialty retail products and mass-market products.

Moving on to today's business; I would like to review third-quarter financial highlights. Net sales increased 19% to a record 89.7 million from 75.4 million in the prior year. At comparable foreign-currency exchange rates, third-quarter net sales were 13% ahead of last year's third quarter.

Sales by European operations were 76.1 million, up 13% compared to 67.1 million; while US operations generated 13.6 million in sales, up 64% from 8.3 million.

Gross margin was 54% of net sales, as compared to 56%; with the decline primarily attributable to product mix, notably the increase in sales of lower-margin US product lines, as well as increased point-of-purchase promotional activity to support our aggressive 2006 Prestige fragrance launch schedule.

SG&A as a percentage of sales, declined to 44% from 47% in last year's third quarter. This was achieved despite 2 million in staff, product development and other start-up expenses relating to our specialty retail initiatives under our Gap Inc. agreement; and a 1.4 million increase in royalty expense included in SG&A compared to last year's third quarter.

On the subject of royalty expenses, we reported yesterday in September 2006 the Burberry license was amended as far as royalties go. The method of calculating royalty payments has been simplified. In markets where US distributors are used, the royalty payment is now based on our x-factory sales, rather than the former method based on distributors' wholesale sales to retailers. The estimated impact of this charge, was an increase to royalty expense of approximately $1.5 million for the current third quarter.

Net income was 4.6 million or $0.23 per diluted share, as compared to 3.8 million or $0.18 per diluted share.

Through the first nine months of 2006, net sales increased to 230.9 million, up 11% as compared to 207.9 million for the 2005 period. At comparable foreign-currency exchange rates, net sales were also up 11%.

Year to date, net income was 12.3 million or $0.60 per diluted share, as compared to 11.4 million or $0.56 per diluted share.

At September 30th 2006, working capital aggregated 127 million and we had a working capital ratio of 2 to 1. Cash and cash equivalents and short-term investments aggregated 54 million. In preparation for new product launches, geographic rollouts and overall higher sales levels; we closed the quarter with inventory of 70.9 million, which was about the same as the start of the quarter.

Assuming the dollar remains at current levels, we look forward to achieving our previously reported 2006 guidance of approximately 305 to 306 million in net sales; and net income of approximately 16.9 million or $0.83 per diluted share. That translates into fourth quarter net sales of between 74.1 and 75.1 million and net income of approximately 4.6 million or $0.22 per diluted share.

Now I will turn the call over to Jean Madar, our Chairman and CEO.

Thank you, Russ. Good morning everyone, and like Russ, I also want to thank you for your participation on our conference call.

With the successful launch and rollout of Burberry London, and [unlimited] decline in other families within the brand, Burberry fragrance sales were up 5% in the current quarter and 9% year to date.

Staying on the subject of Burberry, we are establishing majority-owned distribution joint venture's subsidiary in our [inaudible] market. This should take place by the beginning of next year and ease out in the UK, Germany, Italy and Spain.

Lanvin was a very important contributor to sales growth in European operations. As we reported, the brand sales were up 56% for the quarter. The launch of Rumeur and the continuing strength Elat d'Arpege, a five-year-old fragrance were the brand's catalysts.

With respect to US operations, the 64% improvement in third-quarter sales was fueled by the initial shipments of the new personal Gap products for Banana Republic stores in North America. I hope that many of you on this call have visited a Banana Republic store near you. You will see why we are very proud of the initial personal care program [inaudible] retailers.

The Discover collection of five fragrances; three for women and two for men, are upscale from the [inaudible] packaging, securing and advertising and marketing companies. We will soon create a bath and body line that you can see in the store. And we are shipping now our own fragrance collection for North America.

As part of the Gap Inc. programs, we are shipping new personal Gap products for Gap, Gap Outlets and Banana Republic factory stores for our 2006 [inaudible]. And in our next conference call, we should have much more to say about the early 2007 Gap store personal product launch.

The final new product introduction for 2006 is Paul Smith Story. The concept was inspired by the designer [inaudible]. The graphics were created by an old typewriter as [inaudible] of this. And in fact, the logo that appears on the packaging was typed from this very machine.

The launch began in the UK and the US with roll out in Spain, Italy and Japan; scheduled for early 2007; followed by Latin America and China in mid 2007.

We are moving forward with our plans to introduce a Roxy fragrance for women in late 2007. And we are establishing a working group in Paris to focus on developing products for our Quicksilver and Roxy license [plans]. Also in 2007, a new women's fragrance for S.T. Dupont and Christian Lacroix [inaudible].

The big news that [we had] in recent weeks was the retaining of the worldwide license exclusive agreement to manufacture and distribute perfumes and [inaudible] under the Van Cleef & Arpels brand name. This license runs 12 years, with a five-year option. Early in 2007, we will be purchasing the inventory from the current licensing which is [YSL Beaute].

Van Cleef & Arpels is one of the luxury group's brands, owned by Compagnie Financiere Richemont. It's other names read like a Who's Who of the best of the best, include Cartier, [Pierrge], [inaudible] and [inaudible]. Van Cleef & Arpels is a luxury [name] brand and their different [shape] is from other names in our portfolio which derive primarily from the world of fashion.

While Van Cleef's exquisite jewels are only accessible to the very wealthy, fragrance brings brand access to a much wider market. Today, Van Cleef's [inaudible] is in Europe, which accounts for 70% of fragrance sales. The annual run rate x-factory is about $20 million. In an industry such as ours, where hundreds of new entrants appear, and disappear on the market each year, First, the Van Cleef & Arpels' fragrance introduced back in 1976 is still a strong seller, as is the men's fragrance called Tsar.

We see a great deal of growth potential for the fragrance [inaudible] and work is beginning already on a new fragrance family to be launched in 2008.

As our next conference call is slated for 2007, when we report our fourth-quarter and year-end results, Russ and I wish you the very best of the upcoming holiday season and New Year. Before taking your questions, let me mention that we will be presenting at the Wedbush Morgan California Dreaming conference in Santa Monica on December 6th, and then the current consumer conference which runs on January 10th in New York. We hope to see some of you at these events.

Operator, you can open the floor for questions.

[Operator Instructions]. Your first question comes from Elizabeth Montgomery from Cowan.

Hi guys; congratulations on the good quarter.

Thank you, Elizabeth.

Russ, I guess I have one question. I think I may have missed the first part of your statement about the change in accounting for royalty expenses. Is that a one-time cost that you guys incurred? And then if it is, did I do the math right; did that cost you about five cents?

No, it's not five cents. The cost was about $1.5 million on the SG&A line. But keep in mind that's before tax, before minority interest. So when you get down to the actual effect on earnings, it's only about 50% of that.

Okay.

Alright? The second -- the answer to the first part of your question is that yes, it is a one-time adjustment and basically what it's done -- it's not a change in accounting. It's a change in the agreement. The agreement before called for the royalties to be paid based upon our distributor sales to the retailer. Alright? And what that did in past quarters is that it didn't relate the royalty -- the increase or the decrease in royalties to our own sales. It was a function of the ultimate sales to the distributor. Now, under the new agreement, the royalty is based on our sales to the distributor, which will make for a much easier and simplified method of calculation and comparison.

And then could I ask you like any kind of initial learnings you have from the Banana Republic launch and kind of specific ways you feel like you've had enough product?

If we think that we have enough products -- is part of your question? Let's talk to that. I will say that we could have used more products during the first four or five weeks of the launch. We were taken a little bit by surprise. The sell through was stronger in the very beginning and it still is. And another point that is important is that the amount of products that Banana Republic needs from us from the minimum visual point of view. It's higher than what we thought. We could have done a bigger pipeline--let's put it this way.

But we are rectifying the situation. We have been -- we were up [half] in order to deliver more inventory. Let's not forget, and I would like to the time to discuss a little bit about the Banana Republic, our Gap relationship and VMI. This is really the very beginning of this VMI contract that we have. It's vendor managed inventory. So we wipe our own orders to date from the sales as we've seen in the stores. So in the very beginning we didn't have any sales at the store. So it was just about supplying, still what we need to have is the minimum visual impact. Now that we have a [better] week after week, because on Monday morning we see pools of results of the sales; our stores, we are improving however inventory situations in the store.

We are very happy with the [inaudible] group. It's really an upscale line. It's very large for the territory of its run. We are very happy also by the space allocated by Banana Republic to the product. The fixtures that they have designed and they sell-- so we are off to a strong start. But this is for us the long-term approach. We want to build a strong base. We want to convert the level of customers who come to buy clothing. We have to bring them to the counter. And we're going to develop a force and energy in promoting, championing and gift-giving would also be important for Banana Republic.

Okay. Alright, great guys; thanks and good job.

Thank you.

Your next question comes from Linda Bolton Weiser from Oppenheimer.

Thanks. I was just wondering if you could comment on-- since you raised your guidance for sales for the year, what part of your business has come out being most-- higher than your own internal plans? So which part of the business has most exceeded your original planning expectations?

Clearly it's the expenses and the margins that we have on the -- the margins with respect to the existing lines that existed at Gap, Gap Outlet and Banana Republic; as well as the expenses associated with the product design, product development of the new products that we have yet to introduce under the agreement from Gap stores.

Well, I guess I was thinking that since you hadn't raised your EPS guidance that it was more just -- I'm asking more about the sales. Like what part of the sales has come out better than you had expected?

Okay. It's clearly the Banana Republic line; and it's actually both. It's the combination of the Banana Republic new line and the Gap existing line.

Okay. And just in thinking about the Banana Republic and Gap sales in fourth quarter versus the third quarter-- I guess I was thinking it would be less because you had the pipeline fill in third quarter. But now I'm thinking from comments, that it might actually be not less. Is that accurate in my thinking, or--?

Well, it's going to be very close. I mean the third quarter; clearly you have the initial pipeline that occurred in August and September. But as we continue and feed the pipeline, that's going to continue into the fourth quarter.

Plus you'll have the holiday items.

Absolutely.

That's correct.

Okay. And just a question on the gross margin; it was down fairly significantly year over year, and you mentioned the mix. Is there any way of saying what the gross margin did if you exclude the impact on mix of the Gap and Banana Republic business?

We haven't dissected it to that extent, Linda. It's basically -- it's a combination. You can see where the growth in sales was so it's not a computation that is that difficult. But to actually spoon feed the number, I don't think is appropriate.

Okay. And do you have an operating cash flow number for the quarter, for the year to date?

Year to date, operating cash flow was disclosed in our 10Q. The 10Q was filed last night and [can be viewed] for operations it's a use of cash of around $6.5 million.

For the nine months?

For the nine months.

Okay. Thank you very much.

Thank you, Linda.

Your next question comes from Rommel Dionisio from Wedbush Morgan.

Good morning. On the Gap launch upcoming in the spring; you know one of the things I noticed in the Banana Republic, there was quite a lot of support behind it in regards to sampling and planning and so forth. Have you talked to them about how much support they plan to throw behind the Gap launch in the spring? Is it going to be a fairly similar level of marketing support that they intend to throw?

I would say that the first thing that the Gap is working on is the space allocation. So we are finalizing plans for the space allocation. We will not be launching all the doors at once. It will be a rollout. We will start with 250 and then we will increase another 200 and then another 200. So I think that you will see a strong in-store visual, as strong as BR; strong display and fixtures. Advertising will start later in the year when the products will be furnished in the majority of their stores.

So I would expect the advertising to start not before September, even though we will [stock] goods in their stores as early as April.

Okay. And one question on your prepared comments, Jean; I think you talked about you were establishing or you had already established-- I don't know what you said, on the majority on distribution platforms in those four markets. Have those deals already been signed then or are you still in the process of finalizing that?

What I said is that we are establishing these subsidiaries, as we're going to be a majority owned by us. So we consolidate on our sales; all the agreements are almost ready. And our plan is to have sales from these four subsidiaries starting January 1 of 2007.

Perfect. Okay, thanks very much; nice quarter.

Thank you, Rommel.

Thank you, Rommel.

Any other questions?

Yes, your next question comes from Neely Tamminga from Piper Jaffray.

Great thanks. This is [Erin Murphy] for Neely Tamminga. And let me add my congratulations on the quarter. Just a quick follow up on the Banana Republic launch. Based on your learnings from September, have you been able to make any adjustments to the product flow for this holiday going back into the pipeline? And then I have a couple of quick follow-up questions after that.

Have we made adjustments? Yes, we have. We started to make adjustments one week after we shipped the mentioned line. And we have a team of expeditors and planners working diligently to increase the inventory in the store. But you know that this product is complicated. The packaging is a real piece of wood with metal. And the output of production is today on the right label, but as I said before, we could have used more during the launch.

The only thing that I'd like to add Erin is that with respect to the VMI, Banana Republic and our team of forecasters put together, based on the best information that was available. Again, as Jean mentioned earlier, there was no historic sales data. And the VMI, which basically lays out the minimum and maximum of facings that you want for every single SKU; as soon as we started shipping and they started selling and we saw that we needed more facings, the programs were modified immediately to increase the minimum numbers of each SKU that could exist in the store.

And then for the next month, month-and-a-half, we've been trying to catch up on inventory production as Jean just said, in order to meet that requirement.

And with shipping, we have been shipping gift sets for men's and women's and we are shipping a full line of candles, so our presence in the store is going to be even stronger.

Okay, that's helpful. Thank you. And then, Jean, could you perhaps speak about your maybe longer-term strategy of the mass fragrance side of your business. Is there any way as that going forward you'll be changing how you'll look at store distribution or geographic distribution in that part of your business?

No, we are not going to make any changes in our mass market business. It's a business that now I think has reached a stable level. And the products are all the same, however of course we'll continue to promote the lines that we have in the stores. But we do not expect any geographic changes in our distribution.

Okay. Finally, and then just looking at kind of the broader, international perspective; could you maybe outline some of the emerging markets that have been growth drivers behind maybe your Prestige fragrances? And then also, have you continued to see strength in the Eastern European countries? And finally, what are your thinkings-- or how is Japan and South Korea been trending recently? Thank you.

Japan and what?

I'm sorry. Japan and South Korea.

From a Prestige point of view, we have definitely this year a very strong business in emerging markets. China has been very strong for Burberry. And it has been like this for the last five years now, growing year after year at the [sector] rate in our overall business.

And all the -- Russia and republic [inaudible] we saw a strong business for us. And the brands that we have; in the top 40 of the brands that we have, I would say that Roxy in particular has huge recognition in the Far East, Roxy is known in Japan as a major designer; not only in Japan but in the US for instance. So we have been lucky to have brands that are recognized already in this growing market.

As you go to Russia, you will see how strong Burberry is. So we have benefited from the strong growth with the brands that are already known in this market. It's different when it comes to the unknown that you have to introduce. I don't know if you know, but the cost of doing business has risen tremendously in Russia and China. Just for your information, the operating cost in Russia increased by 25% in the last three months.

So they know that this is a great market, but a lot of companies want to stop, but we have to be careful with the spending in this market.

Okay, thank you very much; and good luck and happy holidays.

Thank you.

Thank you.

[Operator Instructions]. The next question comes from Mimi Sokolowski from Sidoti & Company.

Hi, Jean. Hi, Russ.

Hi, Mimi.

Hi, Mimi.

I have a couple of questions for you. And I'll jump around; I apologize; a little bit. First on the use of cash, 6.5 million; is that mostly inventory, Russ?

It's a combination of inventory and receivables. It's not too different than what we've seen in the past. But then keep in mind that year round our inventory levels were extremely low. I mentioned during my remarks that the inventory levels at the end of the third quarter were almost identical to the levels at the end of the second quarter.

And historically, if you go back over the years, there's a very large swing in cash flow from operations between our third quarter and what we end up reporting as a full-year cash flow from operations.

Okay. And if the September quarter was a major sell for Banana Republic, yet the inventory level sequentially stayed pretty flat, what is the back sale? Is that more the extensions of the Banana Republic lines that you already put out-- the holiday stuff as well?

No. A lot of it really -- the inventory levels for Banana Republic really did not affect us by all that much at the end of the third quarter. Most of it is from the inventories from all the new product launches that we had in Europe. Our European operations, as I just mentioned; the inventory levels at the end of the year were extremely low and there were some out-of-stock situations.

Okay.

We don't want to be in that position, so they increased the inventory levels. And as we continue to grow with new families amongst our brands, it's going to require higher inventory levels.

Sure. And Jean, you were talking before; providing some clarification on how the Gap-- the Banana Republic sell in the fourth quarter might slow from the third quarter. And Russ, I think you added that it might be about even. Did I understand that correctly for the fourth quarter?

It depends. Do you mean the sales of the Banana Republic for fourth quarter, comparing to third quarter? We're shipping a strong business season at Banana. And don't forget because we have VMI, Banana Republic will not keep products in the warehouses. As soon as we ship to the [inaudible] it goes to the store. So we will be-- starting in November we continue to ship against Christmas, usually. If we are working with a normal department store we are always could go to warehouses. In November we don't ship anything there. The season is over.

I think to clarify what Jean and I might have said before, is that in the fourth quarter you do have a lot more of the gift sets and other products that are shipping to supplement the new product line for Banana Republic.

Much of the higher ticket items--

And how often do you get those VMI updates? Is that weekly?

Yes.

Yes.

Okay. And just so I understand-- nothing ships for the Gap and Old Navy and the outlets until early next year?

Let me be precise on that. For one, Old Navy we never ship and we will not ship because we don't have a contract with them. Old Navy is not part of our contract. For Gap and Gap outlets, the new programs for Gap will start in April of next year. But as we accommodate [inaudible] of our contract -- but to accommodate Gap, we produced programs, the programs that we're not supposed to have for this year. So we prepared a certain amount of gift sets, a certain amount of the regular line, and we ship it to them. Our margins on these products are very low because we are not part-- we are not being shouldered, designer of this program.

I understand.

So in 2007, in March or April 2007, the stores will be shipped only the new product that we create for them. Did I answer your question?

Just to make sure that you did; so I understand, you are shipping their existing lines to the Gap store and the Gap outlets now though?

Yes.

That's correct.

Okay. I just wanted to make sure I got that--

At a relatively low margin.

Yes, caught that. In the new group that you talked about in your prepared remarks for Roxy; you had previously announced that didn't you?

Yes, we--

That was [inaudible] Roxy fragrance? Sure.

No, no; that there's a dedicated group.

No, it's not a group.

It's part of the same team in Paris?

The focus groups that we use in order to determine the strategic direction.

Oh, okay.

So what Jean was just trying to say is that things are in process with respect-- because for every fragrance that we launch, we do that. We need to study the market and who we're actually going to target it to--

What I meant is that for Roxy and Quicksilver, because it's a little bit different than the products that we have in our portfolio, because of the age of the customer and because of the type of product that we're [inaudible]. We have established a special working group because the products are a little bit different than what we are used to doing, is what I meant.

Okay, okay. Then Jean you mentioned also that the four markets will transition to a new distribution model starting in January; did I hear that correctly?

Yes, you did.

And have you ever stated how much revenue that represents?

Did I ever state it? I don't know.

Or you could say it now if you'd like.

In the past, we've said that at most it's going to represent approximately 15%.

Okay.

These four markets--

But keep in mind that that 15% even gets diluted further because we already sell those markets, so we're only going to increase the business in that market by -- in other words if it's 15% of our overall 300 million, that's a total of 45 million. The incremental would be half of that, if that much.

The increase, you mean?

Correct.

Yes, okay.

Got it?

Yes, I got that. And Russ I'm going to test your [metal] a little bit for 2007. Theoretically the increased G&A overhead that you would have in association with these new distribution agreements; would that be a pretty even flow quarter to quarter or would there be seasonality commensurate with sales?

With respect to the four markets?

Yes.

What I've mentioned in the past is that the profitability of the increased sales is not the same as the profitability of our own sales.

Okay, and when you say profitability do you mean gross margin?

No, no I'm really talking about net margin. The incremental sale is not going generate the same net margin as a percentage of sales as our existing business. We said that before, because our distributors are -- the business of our distributors are not as profitable as us as a manufacturer.

Okay, I understand that.

But to get into details of what kind of spending is going to be in 2007--we haven't really even come up and discussed 2007 at all yet.

So you can't talk about--

So just to repeat and clarify, when we get to -- we know that the numbers are going to accretive to net income, meaning that the increased sales generated by these distribution subsidiaries will add dollars to the net income.

Accretive in dollars.

[Inaudible] dollars; accretive dollars, but will not be as accretive as a percentage when you're dealing with a net margin percentage.

Okay. Alright, thank you very much.

Thank you, Mimi.

Your next question comes from Linda Bolton Weiser from Oppenheimer.

Thanks. I didn't catch if you guys had talked a little bit about the plans for a women's fragrance launch for Burberry you get in late '07. Can you give us a little color on that?

Not yet. No, we cannot talk too much about that now, no.

Well, is something being planned?

For late 2007, nothing has been announced yet.

Oh, okay, thanks.

But we'll keep you updated quickly.

Okay, thank you.

Thanks, Linda.

Thank you, Linda.

The next question comes from Elizabeth Montgomery from Cowan.

I just had a couple follow ups. Can you just remind me again what market the distribution is going be brought in [inaudible]?

Let's see; UK, Germany, Italy and Spain.

Okay, thanks for that. And when do you plan to give the preliminary '07 guidance?

The end of November, early December.

And then my last one; Jean I thought you said that you were developing the team in Paris to work on the Roxy and the Quicksilver product--

Can you speak a little bit louder?

Okay, yes, sorry. I thought you said that you were developing a team in Paris to work on the Roxy and the Quicksilver product and I wondered-- I guess I thought originally that maybe that was being done by the same team that does the rest of the Prestige beauty products. Is it--?

Yes, but what we mean is that in Quicksilver we're going to have products that are not regular fragrances. We are working on outdoor, skin care, sun-care type of products. So we need to have the expertise of other people than our regular marketing group. Do you understand?

Uh-huh.

Sun care, skin care will be more important for Quicksilver than fragrances. And actually, the first group of products in particular will be these types of products. Roxy, which is the women's side of the business of Quicksilver, will [inaudible].

Okay, that makes a lot of sense. And should I think of developments for that or developing that team being a little bit dilutive to '07, maybe not fully offset by the Roxy fragrance launch in the back half of the year?

No, you shouldn't worry about this. I would not say that, no.

Okay. Alright, thanks guys.

Thank you.

Are there any other questions that you may have?

Yes, sir. You have a question from Ursula Moran from Bear Stearns Assets Management.

Hi, thanks. You may not be willing to say much more about this, since it sounds like it's a bit early for 2007 specific guidance. But I get the general sense that 2007 is very back-half loaded. Certainly at least on the US side, it sounds like both the bulk of the Gap activities, as well as the Quicksilver things fall fairly late in the year. And I was curious whether -- first is that a correct impression? And secondly, is that also the way you expect the calendar to look on the European side of the business?

You talk about Europe, I'll talk about US.

Okay. I would tend to agree with that. I would say that our group grow more on -- will show in the-- I would say starting the second quarter; second, third and fourth. I would say it could even accelerate starting the second quarter [inaudible].

Well, Europe-- absolutely for Europe and even to an extent for the United States. Except, keep in mind we will be shipping the Banana Republic line in the first quarter, which did not exist last year. So from a US standpoint, that will be included in the US comparison. But you're absolutely right for Europe and that happens to be typical.

A lot of new launches in our history have always been done in the third quarter of the year.

Right, I understand the holiday issue. But, does Mother's Day matter?

Less and less for Mother's Day.

Okay, that's primarily a US phenomenon?

Yes.

Okay, thanks.

Okay? Thank you for your question. It was very interesting. Alright Operator, if there are no more questions--

You have a question from Mimi Sokolowski from Sidoti & Company.

Okay, we'll take-- this is the last question. Go ahead Mimi.

This is quick and easy. I just saw in the queue last night that the investment in the Gap business will continue in early 2007. Did I read that correctly?

The launch is going to happen in early 2007. The investment that we're making is an investment because we have the creative; we have the product design; we have the product development. That is all taking place without the revenues for Gap. Eventually this team is going to be an ongoing team that is working within our organization, and will continue to develop products. But we won't be able to look at it from the standpoint of a start-up expense. It'll be more part of our overall operation.

Okay.

And we have to say also that this expense, the expense related to a creation of a product are all spent when they're incurred, we don't capitalize on the--

We've been saying that all along. That's just part of accounting is that development of-- research and development, those types of expenses have been expensed as they've been incurred. The only thing that you can capitalize is really molds and things of that sort that will have elongated or future-life uses.

Okay. And in previous quarters you broke out what the initial investment was for the Gap start up.

We did this quarter as well. We indicated it was another $2 million during the quarter.

And I caught that. And was there prior year-end guidance and has it shifted around at all?

I'm sorry.

Was there prior annual guidance for 2006 and has that changed at all?

I don't think that we really issued guidance on this type of expenditure--

Okay, you did say year to date it was [inaudible]

--reporting it as it's been incurred. It was about $1 million a quarter up through the first-- I guess the last six months of 2005 and the first three months of 2006. And so far, for the last two quarters, we reported that that number went up significantly to $2 million per quarter, through the end of September. Thank you.

Alright, that answers everything.

Okay. Again let me thank you for your participation on this conference call, whether you are live on the call or listening via our webcast. And once again, if anybody does have additional questions, I can be reached at our New York corporate headquarters. Thank you very much and a very happy holiday season to you all.

This concludes today's teleconference. You may now disconnect.