Lifeway Foods Inc (LWAY) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Lifeway Foods Inc. fourth-quarter and fiscal year 2011 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Katie Turner from ICR. Thank you. Ms. Turner, you may begin.

Thank you. Good afternoon, and welcome to Lifeway Foods' fourth-quarter and full-year 2011 earnings conference call. On the call with me today are Julie Smolyansky, Chief Executive Officer, and Ed Smolyansky, Chief Financial Officer.

By now, everyone should have access to the fourth-quarter and full-year earnings release for the period ending December 31, 2011, which went out this afternoon at approximately 4.05 Eastern Time. If you've not received the release, it's available on the Investor Relations portion of Lifeway's website at www.Lifeway.net.

This call is being webcast and a replay will be available on the Company's website. Before we begin, we'd like to remind everyone that the prepared remarks contain forward-looking statements. Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and, therefore, undue reliance should not be placed on them.

Similarly, descriptions of Lifeway's objectives, strategies, plans, accruals or targets contained herein are often considered forward-looking statements. Actual results could differ materially from those projected in any forward-looking statement. Lifeway assumes no obligation to update any forward-looking projections that may be made in today's press release or on the call that is going on now and posted on their website.

And with that, I'd like to turn the call over to Lifeway's CEO, Julie Smolyansky.

Thank you for joining us today. I'll begin with an overview of our growth and success in 2011, and then Ed will review our fourth-quarter and full-year 2011 financial results in more detail. Finally, we'll open the call up to take your questions.

We are extremely pleased with our performance in 2011. This year, we generated record sales. Our record sales numbers were met despite higher costs in prices of milk, our largest raw material. In the past year, we enjoyed an increase in sales, and we believe it is attributed to the increase in consumer awareness around the benefits of kefir products, due to our marketing and advertising efforts and our increased distribution throughout the year.

Our base kefir business continues to perform extremely well. In 2012, we will begin limited distribution of our kefir products in Target, including almost 200 PFresh and 250 SuperTarget stores. We will have our 8 ounce kefir four-packs in three flavors -- strawberry, vanilla and mango. We continue to believe our product offerings are extremely on trend as consumers demand healthy and delicious food products.

Today, the total kefir industry represents approximately $200 million in annual sales, and we believe the industry is growing in excess of 20%, as new people every day are learning about kefir and its many health benefits. As we see it, Lifeway has only begun to realize our market-leading industry position, and we expect another record growth year of growth in 2012, which I will discuss in more details in a few minutes.

We are intently focused on product innovation to help drive growth in key categories. In 2011, we introduced new and delicious kefir products to our customers, such as new flavors of Frozen Kefir, including pumpkin, chocolate, and dulce de leche. Other innovative product offerings included Greek style froyo and ProBugs Frozen Kefir, a new frozen push-up version of Lifeway's ProBugs probiotics beverages for children.

Since we first introduced the world's first Frozen Kefir this past year, the response has been overwhelming. These new products offer guilt-free and nutritious dessert options with a combination of healthy probiotics, low-calorie counts, and the tart and tangy flavor profile that has been driving the frozen yogurt phenomenon. We believe our investments in marketing continue to drive sales as we further expand our growing product offering.

We continue to be extremely pleased with the results of Lifeway's Frozen Kefir, which began shipping to our distribution network at the beginning of second-quarter in 2011. By the end of 2011, it was available in approximately 3,000 retail locations. And we believe we can continue to grow distribution of our Frozen Kefir in the US, and by the year-end, estimate that Frozen Kefir will be available at approximately 10,000 doors.

We also introduced three new Frozen Kefir flavors this quarter, which I had mentioned earlier, including chocolate, pumpkin and dulce de leche. Other new products, as I also mentioned, were the Greek froyo and Frozen ProBugs for kids. And that we believe it's extremely important for our successful product innovation is the fact that Frozen Kefir, for example, and our new Greek froyo, enable Lifeway to expand shelf space in (technical difficulty) grocery store.

This is really important, as we continue to grow our new and existing distribution relationships to expand sales long-term. In addition, our kefir and Frozen Kefir products have strong international distribution opportunities for increased growth.

We've continued to pursue the opportunities to expand our international kefir distribution with the launch of our frozen novelties in the UK, which we anticipate to occur in the fourth quarter of 2012. We are very excited about the launch and believe it will lead to further retail distribution in the UK as well as throughout Europe. Lifeway continues to be better positioned than ever to capitalize on future growth opportunities in the US and internationally.

This past year, as many of you are aware, we celebrated our 25th year anniversary with a whirlwind national marketing campaign that culminated in Times Square, New York, where we handed out over 20,000 samples of Frozen Kefir. This anniversary tour was only one of our marketing event highlights of the year.

In 2011, Lifeway Foods sponsored high profile events such as the Mercedes-Benz Fashion Week, where 25,000 free samples of our 90-calorie Frozen Kefir were given out to key influencers. We debuted the Starfruit Cafe mobile food truck in Chicago specifically designed to deliver Chicagoans with their Frozen Kefir fix and raise awareness of Frozen Kefir. And over the summer, the kefir truck stopped by the Ravinia Music Festival, Taste of Chicago, Lollapalooza, Dave Matthews Caravan Festival, among other events, to bring this good-for-you soft-style soft-serve Frozen Kefir to the Chicago area celebrations. We estimate that we sold over 60,000 units of Frozen Kefir at these events in addition to our free samples.

At Lifeway Foods, we believe that there is no better marketing opportunity than providing samples to potential new customers who are unfamiliar with our delicious and healthy probiotic products. We will continue to invest in these marketing and advertising initiatives in order to increase our retail distribution in the US and abroad.

In 2011, we continued to use utilize social media to connect new and existing customers to our product offering lineup. We continue to expand our Facebook page, which is currently liked by over 66,000 fans; and our Twitter page, which is followed by over 35,000 people. Most recently, we created a Lifeway Foods page on Pinterest, where our customers can pin their favorite kefir products to their own message boards. We pride ourselves in our early adaptation to these innovative and cost-effective marketing techniques to promote the Lifeway Foods brand.

We also recently partnered up with Every Mother Counts, an advocacy and mobilization campaign founded by Christy Turlington Burns to increase education and support for maternal mortality and health globally. Beginning in 2011 and 2012, Lifeway Foods has been donating $0.05 from the sale of specially marked bottles of low-fat blueberry kefir to Every Mother Counts. We believe this good-for-you, good-for-the-world campaign will promote both Lifeway Kefir and the cause of maternal health.

Health and wellness research trends continue to suggest that more and more consumers are demanding healthier alternatives and real food products. We already have a loyal following of kefir customers and believe that this number will only continue to grow as more consumers learn about kefir. A great example of this growing awareness is Lifeway's recent success at Natural Products Expo West, a broader healthy living and wellness product tradeshow, where (technical difficulty) existing retailers and distribution partners tried our products and met with our sales team.

We launched 15 new SKUs, some of which I had already mentioned, which has been a record for us. And the response was phenomenal, especially for our new frozen ProBugs. And we believe, each year, we realize an increase of success which leads to increased distribution of our products and higher sales.

In 2012, we will continue to intently manage the controllable aspects of our business, and expect to realize an incremental cost savings of approximately $1 million from increased kefir bottling efficiencies and economies of sales to achieve record annual sales and profits in 2012. Ed will discuss our bottling efficiencies for 2012 in more detail in a few minutes.

In addition, we continue to use our cash to make strategic investments in our business. And even with these investments, we are pleased to be able to initiate a dividend and new share repurchase program. Going forward, we are very confident in our future growth, and plan to take advantage of the opportunity of expanded distribution in the US and internationally with Lifeway's market-leading position.

Over the last 25 years, we've built a strong base of kefir consumers that further expand as more people look for natural, healthy and convenient food options that also taste good. We expect 2012 to be another record year of sales and profitability, and we continue to be pleased with our ability to grow top-line and to further increase our cash flow generation. We believe our strong growth reflects the strength and depth of our kefir product offering.

And now I'd like to turn the call over to Ed to review our fourth-quarter and full-year 2011 financial results in more detail.

Thank you, Julie. This is Edward Smolyansky, and I'll now talk about the financial results for the quarter, and the fourth quarter and the year-end -- the more kind of fun stuff; and then I'll do a kind of a -- a little bit of the kind of the fun stuff.

So, for the fourth quarter, gross sales increased obviously 16% to $18.7 million compared to $16.1 million for the fourth quarter of 2011. Obviously, the increase is primarily attributable, excuse me, to the increase of sales of ProBugs, kefir, and kind of all of our different lines.

BioKefir also was a very important aspect of our sales. It contributed approximately $350,000 in sales in the fourth quarter. Total fourth-quarter consolidated net sales increased 14% to $16.8 million from $14.7 million same period last year of 2010. And net sales, which is important to note, net sales are gross sales minus promotional activities such as sliding fees, couponing, spoilage, promotional allowances, as well as early payments and, you know, different terms given to customers.

As we mentioned in our press release, it's important to note that the total allowance for promotional and discounts in the fourth-quarter 2011 was approximately $2 million or 10.5% of gross sales compared to $1.4 million or 8.6% of gross sales in the same period in 2011. The allowance increase of about [$0.5 million] year-over-year is due to the adjustment made during the fourth quarter of 2011, associated with write-offs of accounts receivable balances and known discounts. We do not anticipate a similar expense of that size in the coming quarters.

Gross profit for the third quarter -- I'm sorry, for the fourth quarter of 2011 increased 27% to $4.1 million compared to $3.8 million in the fourth quarter of the prior year. The gross profit margin increased [23%] in the fourth quarter versus 20% in the fourth quarter of 2010. The increase in gross profit is primarily due to the lower cost of transportation and other petroleum-based production supplies, partially offset by the increase in the conventional -- increase -- I'm sorry -- in the price of conventional milk as well as organic milk, our largest raw material. The total cost of milk was approximately 20% higher during the fourth quarter of 2011 when compared to the same period of 2010.

Operating expenses as a percentage of net sales were approximately 20% during the fourth quarter of 2011, when compared to the same time, approximately 24% during the same time in 2011. So, operating expenses were pretty much the same from quarter-to-quarter -- year-over-year. This increase 1% was primarily attributable to the increase in selling expenses as compared to the same time in 2011 -- I'm sorry, 2010.

And then, of course, income taxes. Income tax benefit was $100,000 for the fourth quarter of 2011 when compared to the same amount of last year.

Now I will review some of the financial highlights for the full year of 2011. 2011 consolidated gross sales increased approximately 21% or $13.7 million to $71.1 million compared to $63.5 million in 2011. This increase in sales is primarily attributable to the increase in awareness of our flagship line, ProBugs, as well as BioKefir and our general Lifeway Kefir line. Lifeway's Frozen Kefir line, which was launched in April of 2011, contributed approximately $700,000 in sales for 2011.

Gross profit for the year was -- I'm sorry, gross profit for the year increased 2011 -- to 2011 increased 32% to $22.5 million compared to $20.2 million for the first quarter -- fourth quarter of the prior year. 2011 -- excuse me -- 2011 total net income was $2.9 million or $0.17 per share compared to $3.6 million or $0.22 per share in 2010.

A couple of balance sheet items that I want to review, total stockholders equity is $35.4 million as of December 31, 2011, which is an increase in stockholders equity of $1.7 million when compared to the same time ending December 31, 2010. This was primarily due to an increase in retained earnings of $2.9 million when compared to the same time again -- December 31, 2010.

In conclusion, as Julie mentioned, we believe we are extremely well-positioned for future growth in the US and abroad with our kefir line. As Julie mentioned, we expect to realize a benefit of approximately [$1 million -- $1.2 million] with -- associated with a new bottling contract that we have been able to associate. Going forward, we plan to realize additional expenses.

That concludes our financial overview.

Hello? I think that concludes our financial overview. We would now like to open the call to questions. I'm not hearing --

(Operator Instructions). James Fronda, Sidoti & Company.

Hey guys, how are you?

Yes -- do you have a question?

Yes, yes, yes. Sorry. I guess my first question is for Ed. Do you have any idea, I guess, in terms where milk prices might be headed for in 2012?

Yes. Well, we know that the milk prices for April are about 3% lower than they were for March and about 20% lower than they were from April of last year.

Okay.

And that's kind of a public thing, it's knowledge, it's -- it is what it is. But organic milk prices, I'm sure you've read, have been up. So you have to kind of consolidate and combine those two factors.

Okay. All right. And Julie, do you have any idea, I guess, how big kefir is in Europe? I mean, do people even know about the product? Do you have any sense in terms of that?

Well, kefir in Europe is a 2,000-year-old product, so it's at the tip of the tongue for everybody; it's here in the states where we're still lagging. But in Europe, it's a very well-established market. Our intent is to bring a new innovation in that bringing it frozen. Something that's been known to that market very well. We have a very unique opportunity to bring something that's never been done to international and global markets by a frozen concept.

Right. Okay. And I guess could you give a little more color on the new bottling contract? Is there any more details on what you can give there?

Actually, no. We're not supposed to give out anything more than that. But it is significant in terms of --.

All right, that's good. All right, thanks, guys. Good quarter.

Howard Halpern, Taglich Brothers.

Can you talk a little bit more about the cost savings from, I guess, the bottling efficiencies? Is that going to start in the first quarter?

Yes, it started as of January 1, 2012, but what we will do with the savings, that we haven't decided. I mean, it could be something that we could put back into retained earnings or it also could be something that we could potentially put into our marketing and advertising budget. But it is there and it's significant. And that's one of the reasons that we have announced a dividend.

Okay. So -- and that will be recognized in the cost of goods sold, that that should come down --?

Absolutely, yes.

Okay. And will the promotional allowance, you said you're not going to have to have, I guess, a year-end catch-up in the future for it, but is the percentage overall going to increase from that 8.9%?

The percentage of that P&A promotional allowance should be around 10%, I would say.

Okay. Okay then. That's helpful.

Just historic. In the fourth quarter, obviously, we took a little bit more of a catch-up, so it's a little bit skewed for the fourth quarter. But as we go forward, it will be around kind of -- you know, the historic value -- at 10% of gross sales-ish.

Yes, okay. Did you enter the first quarter with those 3,000 doors for the Frozen Kefir?

To the first quarter of 2012?

Yes.

Yes.

Okay, so (multiple speakers) --

Again, it's approximation, because we sell to major distributors, we don't always know exactly where it's going, but it's sort of an estimate of where we know that it is. It could be more.

Okay. What sort of order flow or re-order flow or turn, I guess, (multiple speakers) is the terminology, have you initially seen?

Yes. We're seeing it fly off the shelves and a ton of buzz. It was featured in the Today Show earlier on in the year, with Hungry Girl giving some to Al Rocher, and Al Rocher really (technical difficulty) it. And we're getting lots of buzz through the blogosphere and that whole arena, as well as mainstream press.

But we're getting tons of reorders, hearing just amazing things that it's really driving the category of frozen alternative novelties. And customers really excited to bring in some of the newer offerings that we're also offering. Of course, Greek is a huge trend, which we've also jumped on and have been, in one of the earlier companies that had the Greek style kefir version, higher protein, more indulgent product. So as we get into the summer months, the warm weather months, we are already seeing a huge increase and bump in the reorders as well as the new products that are being placed on store shelves.

Okay. That estimate that you had going forward for 10,000 doors, have you already gone through the sales cycle process to sort of know approximately when those might kick in? Or do you still have more work to do there?

Yes, we still have more work. I mean, we're still in the kind of work stage for this year. But some of the areas, some of the accounts that we already have acceptance for that we're putting in for those 10,000 -- averaging our 10,000, are shipping in June and July. And so we still have part of the end of the year to get some good sales from. And frozen ProBugs is just -- we can see right away, instant hit. People are really, really excited to get that one.

And is that placed a little differently near some of the, I guess, next to where the kids would buy their frozen products?

Yes, I mean, our goal is to be eye level for children across stores. And that's already been accepted at Kroger, at Whole Foods, at Safeway's -- you know, all -- some of those mass-market stores.

And then if you look at some of the natural food frozen -- you know, children's frozen novelty, there's actually not that many opportunities or options out there for healthy kids' ice cream products. So that gives us a really nice position in already leveraging a brand that moms know and trust and really have taken to. We see ProBugs, in general, expanding really nicely. If you go to any Whole Foods store, you can pretty much see how much wonderful space we have for ProBugs, which tells you something. And so -- and mass-market is looking at that space, and of course, realizing that that's a huge category that we've kind of opened up.

Yes, I've seen it in the Whole Foods -- the regular ProBugs. I haven't seen yet, at least in the New York area, the frozen product yet.

They're going to start shipping.

Okay. And then I guess really two last things that are in the actual press release that you have stated there. You do believe that even off of the $21 million gross sales in the first quarter, that you can achieve the $100 million in gross sales this year?

Well, a couple things have to happen. So, I mean, we don't want to be too forward-looking. We're only in -- you know, it's April 2nd, and there's a couple of things that we're working on that may or may not come to fruition. We feel really confident that we can get there. But time will tell, I guess. We need a couple more months to really be able to project out. But there's no reason why we really shouldn't.

Okay. And if that $100 million sales revenue that you stated in the press release, that if you achieve that with the things going correctly, then you could surpass -- I think it's 2009 rev net income, which was almost -- which was like $5.6 million. So those two go hand-in-hand?

Well, to put out -- we're putting around $100 million in gross revenue, that's our kind of goal this year. We think we can achieve it. But to achieve that, we obviously have to spend money on advertising and marketing and all the other things like that. So we can't obviously say that we can achieve a certain amount of earnings per share; that's just not possible.

So, we're confident we have a gross margin target; we have a budget, things like that. But our goal, which remains the same goal, is to achieve a certain amount of revenue growth.

Okay. Well, I (multiple speakers) --

Just (multiple speakers) --

(multiple speakers) -- ending our market share and nurturing some of the innovations that we've come up with, there's many people in the industry that would say that we're one of the most innovative dairy companies, for sure, by some of the things that we've done. You know, taking an old -- a very stable, old product, like I'd mentioned earlier, 2,000-year-old product, and innovating it through the delivery system, whether that be a pouch concept that we launched in 2006, that you're seeing all throughout children's foods, now through a frozen concept, and offering a frozen ProBug push-up.

I mean, these are innovations that we've really nurtured over the last few years to get to this place and build a nice foundation -- excuse me -- build a nice foundation for kind of the next 25 years, as we lay down the groundwork in the United States for these products, and outside of the United States for some of the other products that we think are --.

Okay.

I mean, the only reason I brought that up is because you do have a sense in there that isn't quite as potential as we're discussing on the call. Because as we believe a combination of increased sales and lower milk prices will help us generate $100 million in gross sales. So that's in the press release. So people -- I don't know if you can alter that to say the potential too, because people might take it as a disappointment if you don't achieve that, in the press release.

Yes, we're -- I mean, we're pretty confident that we can do that because it's been pretty very much on par with our historic sales increases that we've had for 25 years -- you know, we generally get to, like, a 20% increase in -- of our -- what gross sales were about $77 million for 2012. So, let's round up to $80 million, let's just say that. So, $80 million, we think we can continue to grow at that level, especially with like [15] new (technical difficulty) that's the highest amount of product launches that we've ever had in one year.

Okay. Okay, well, I hope it's met or exceeded. And I guess, hopefully, we'll be seeing you soon in New York.

Yes. Sounds good.

Kevin Dreyer, Gabelli Assets.

Just -- I was just curious, regarding the dividend, what prompted this? Was it anything external, whether it's tax dynamics? And did I read it right, that you're looking at an ongoing dividend versus just something one-time in nature?

Yes, we're looking at an ongoing -- it's an annual dividend. What prompted it is that -- well, we can't really say exactly, but we have a lot of new cash flow coming in. And basically that's it.

Okay. And in terms of the international business, I know you'd spoken about the UK before, but I think I heard about -- something about other European countries as well. Could you just expand a little bit about your plans in that regard?

Sure. So, through the UK, we can basically ship the product to any European Union country. And as I mentioned before, there is already an awareness of kefir in these countries -- in many countries. Not every single one of them, but most of them are heavy users of dairy products, heavy users of cultured dairy products. And the frozen yogurt tart and tangy trend has not escaped international countries.

It's -- we're seeing these frozen yogurt retail shops open up everywhere in every country. You name it -- there's a frozen yogurt store concept, whether that be Pinkberry or some other regional player, which says that we're, again, on trend with kind of a grocery store offering, that we think we could really capitalize on some of the markets that are being created by the retail stores.

Okay. Well, that's great. And then also just in terms of the kefir market, when you said that the $200 million number, was that US?

Yes. Yes, yes. That's just the US.

So -- and that's at retail, correct? So -- just so I'm sure --

Correct. Right.

-- I'm not looking at -- yes. Because you guys still have the bulk of the market to yourselves?

Correct. We have about 97% of the market share.

(laughter) Right. And then as far as growth, you said it was growing in excess of 20%. I guess just looking at your numbers, fourth-quarter net sales were a bit below that, I think [something with 14]. Is there any sort of a slowdown going on? Is there some sort of one-off impact that's behind that?

Our -- no. Our fourth-quarter net sales are just under $19 million. Gross sales are just under $21 million.

Okay.

I'm not sure if that was -- I'll have to look at the press release, but no. Net sales -- both of them are up about 15% -- gross and net.

Okay.

Yes. So our -- just to be clear, our gross sales for the first quarter 2012, which just ended on Friday, March 30, are about just under $21 million.

Great.

And net is just under $2 million less than that, so $19-million-ish.

We're also finding that people -- new people are coming into the category through Frozen Kefir. You know, some people prefer that version of it and so then are learning about our regular products too.

Great. Thank you and congratulations on the continued success.

Thank you.

Ivan Zwick, Raymond James Financials.

Hi, Julie and Edward. Some of the questions I was asking, the other people have touched on; but I do have a couple here I want to expand on. On the -- it seems like you're spending more money on the marketing percentage-wise to continue with the increase we're getting in the sales from it. Is that going to pretty well be the same going forward?

Yes, I mean, I do believe it's important to continue to invest in our brand, and aim Lifeway, and the opportunities right now with all of the attention going to the dairy case, it's really important that we maintain that space, that we grow that space.

As we kind of reach that $100 million category place that we -- it's sort of an interesting -- it's a very critical time for a brand and a category. So you want to make sure that we take strategic steps to, in case there's competition down the line, or other players kind of looking at us as, hey, why does Lifeway get to enjoy 97% of the category -- you know what I mean?

So we need to continue to make a strategic investment into the brand and the consumer marketing of the brand. And, of course, as you get to $100 million, it costs more to continue to grow at that 20%, to kind of the early adapters have already come in. We need to kind of get some of the hold-outs, let's say, or transition yogurt users into kefir users, and things like that.

Okay. And also, on the -- you gave the guidance for the first quarter of the [$21 million], I guess, net of [$19 million]. So it appears that to reach this $100 million under gross sales, we're going to have sort of a accelerated growth going through the rest of the year?

We think so.

Okay. All right.

Yes. Like I also said, now it's not just drinkable kefir that we're talking about; we're also kind of laying the ground for frozen and Greek froyo, and frozen ProBugs -- I mean, these are all different markets that all require slightly different approaches and speaking from different kind of voices, let's say, regards.

And again, as we go into mainstream markets, that's a little bit of a different messaging than our, let's say, kind of core users. But we'll be investing in a lot of demos as we launch and roll out some of these new products. Again, in other social -- more social media, more traditional marketing spend, but all those things to continue to raise awareness.

Now, what you're going to do in the UK and going forward in Europe -- are you pretty much going to stay just in the frozen area?

Yes. For now, we will.

Okay. And in the past, you've mentioned about going into Canada. Where is that situation?

Again, I mean, we're still looking at partners in Canada, and going -- and this week. With Canada, it's sort of an interesting situation, because they're -- it's kind of politically -- it looks like they're going to be opening up maybe later on in the year the quotas for dairy products, maybe as early as September. So we're trying to really understand how possible is this and is it likely that they're going to open these quotas up, and allow us to actually just ship this product over to Canada. That would be our preferred and desired position. But if not, we're simultaneously looking at three or four different co-packers still this year.

You know, it's not -- it's an interesting country, actually. It's so simple and it's so close, yet it's kind of complex.

Is that something, though, that -- which ever way you do it, especially if this happens in September and all, that this would happen sometime before the end of 2012?

Yes, I think we'll have something by 2012.

Okay. And then also what I wanted to ask you, do you have a ballpark figure what type of sales you'll have in the frozen products for the whole year 2012?

Yes. hi, Ivan. So, in the first quarter, we booked about 700,000 in the sales for frozen for the first quarter. And I think that that trend could probably continue with an expectation of 15% -- 10%, 15% increase on that. So if it's -- if we're already at 700,000 for three months, it's safe to say you can multiply that by four and maybe increase that by 10% or 15%.

Okay. All right. And also, what's happening with the Starfruit franchising concept? Or -- anything going on there?

So -- yes. So, our Starfruit sales increased about 10% this year. As I mentioned a little bit, the Starfruit mobile truck was out, the only -- we were the first frozen yogurt, let's say, concept in the mobile food truck that got a license for that this year -- last year, I would say 2011, I mean.

And we have been -- well, I can't disclose some of the things that are going on. I guess we'll to have to just let things kind of -- a couple months go by. I can't -- some of the things are -- I'm not able to disclose. But I can tell you that we've been active pitching some of our relationships and leveraging our partnerships with existing retailers, and talking to -- trying to get like a store-within-a-store kiosk concept.

So we've been kind of working that angle of it now. And we see that some of the other players out there in those retail outlets have been having some successes with opening up kind of frozen yogurt stores within grocery stores. So that is an opportunity that is -- that we're actively working with.

Okay. But as far as getting a group of individuals to do freestanding ones like you have your [four] in Chicago, you're nowhere close to that yet. Is that what you're saying?

Yes. I don't really know that that is going to happen. I think that the market is kind of penetrated with the concept in general. And I think that we've created a really interesting concept and a unique one, in that we have something very different than a lot of the other concepts out there. The other ones are all frozen yogurt and they all -- all of that product is coming out from one supplier; it's a powder that they mix with milk in the machines.

Ours is very different. It's unique; it's cutting-edge and kind for more premier and exclusive to being a kefir product. It's our kefir. And again, we have a lot of opportunities with the store-within-a-store. We're basically handing a turnkey operation over to a potential retail partner or an investor, whatever, who would like that. But I don't -- you know, we're not retail people. We're not Starbucks or (multiple speakers) --

Right. I understand.

-- or any of those. We're really kind of more manufacturers. And I think the concept is great and we can definitely do something with it, as we look at all the opportunities we have. And it's helped us. It's been a huge kind of pilot for us to be able to test some of these concepts. And we wouldn't have this frozen line without the Starfruit concept at all.

We've been able to do a lot of test marketing locally and create a lot of brand awareness for kefir in general. I do like it, in that, in Chicago, the people know what frozen (technical difficulty), so they know what Starfruit is. And so we'll probably just keep that as a nice marketing and awareness kind of place, and be able to continue to launch new things from the stores, and test market and have a nice, I would say, almost research and development area for our frozen.

Okay. And one other question I had. On the dividend, you spoke about going forward maybe in the third quarter of this year. If you just did a penny a share a quarter, that's still about $660,000. You don't feel that's going to take away from your growth? (multiple speakers)

Well, I guess -- yes. Sorry, Ivan, it's Ed. Like we said before, we have a couple of different things that have been kind of going on, so it's cost neutral for us. And at this point, we feel very confident if nothing else changes, we should give back something to the loyal shareholders for the last 25 years.

Okay. Okay, well, that's all my questions. And good luck on your continued success. And I really do think that this -- getting into Europe from the UK could be a very good over there. Because I've been to a lot of those countries and kefir is a -- they all consume it over there.

I would like to turn the floor back over to Julie Smolyansky for closing comments.

We look forward to an exciting 2012. And please look for some of these new products that we're launching that we're very excited about. Tell your friends about them. Again, follow us on Twitter and Facebook to kind of see the daily updates of what's happening, and distribution opportunities and things like that, that kind of are not press release-worthy, but still worthy of mention. So that's a great place to get some more information.

And I look forward to a successful 2012. And, everybody, happy, happy holidays, Easter and whatever the other religious holidays -- happy spring, and enjoy the rest of the year.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.