Summer Infant, Inc. (SUMR) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Summer Infant Third Quarter Fiscal 2010 Earnings Conference Call. On the call for the Company are Mr. Jason Macari, Chief Executive Officer, and Mr. Joe Driscoll, Chief Financial Officer.

By now everyone should have access to the Earnings Release, which went out today at approximately 4 o'clock PM Eastern time. If you have not received the Release it is available on the Investor Relations portion of Summer Infant's website at www.summerinfant.com. This call is being recorded and webcasted and the replay will available on the Company's website as well.

Before we begin, we'd like to remind everyone that these prepared remarks contain forward-looking statements and 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 upon them.

Forward-looking statements or information are based a number of estimates and assumptions and are subject to a variety of risks and uncertainties, which could actually events or results to differ from those reflected in the forward-looking statements or information. Forward-looking statements can be identified by words such as anticipates, intends, plans, believes, estimates, expects and similar references to the future. Examples of forward-looking statements include but are not limited to statements we make regarding our guidance for the fourth quarter of 2010 and for 2011.

There are many factors that can result in actual performance differing from projections and forward-looking statements. We refer all of you to the risk factors detailed in the Company's annual report on Form 10-K for the fiscal year ended December 31st, 2009 filed on March 10th, 2010 and subsequent filings with the Securities and Exchange Commission. Should one or more of these risks and uncertainties materialize or should underlying estimates and assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements or information. Accordingly, undue reliance should not be placed on forward-looking statements or information.

We do not expect to update forward-looking statements or information continually as conditions change, except as may be required by law and you're referred to the full discussion of Summer's business contained in Summer's reports filed with Securities and Exchange Commission. Additionally, Summer Infant assumes no obligation to revise any forward-looking projections that may be made in today's release or call.

And, with that, I'd like to turn the call over to Mr. Jason Macari. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thanks for joining us. On the call today I would like to discuss our third quarter operating performance and update you on the key initiatives and business developments we are working on for 2011. Joe will then walk you through the financials and update our outlook for 2010 and preliminary outlook for next year.

Our top-line performance improved significantly in the third quarter with sales increasing more than 21% to $49.8 million over the year-ago period. The recent trends we have experienced have been very encouraging, especially as our business continues to diversity in terms of products, categories and distribution channels.

Our recent success has been rooted in our ability to leverage our history of quality and innovation into new lines of business beyond our core competencies in categories such as monitors, bath and gates. This has led to important market share gains, increased shelf space at our major retailers, which has fueled 25% organic growth through the first nine months of the year.

Based on our strong year-to-date performance we are raising our revenue outlook for the full year by $5 million to approximately $190 million. In terms of earning power, our strong sales growth in the third quarter was partially offset by lower gross margin and higher operating expenses compared to a year ago. Gross margin is down year-over-year, primarily due to higher closeout sales in the most recent quarter, as we proactively liquidated some discontinued products in order to end the year with cleaner inventory levels.

Like everyone else, we are also dealing with cost pressures, particularly rising commodity prices, and our customers continue to look for us for margin enhancement and promotional support. While we feel we have a competitive advantage with our ability to take costs our through reengineering products, the current trend, not only in commodity prices but labor and freight as well, will make it difficult to expand gross margins from current levels in the near term.

At the same time our SG&A is up 25% from Q3 of last year. About half of this increase is due increased variable SG&A, which is a direct result of the higher revenues we have achieved. In Addition, as we've detailed throughout 2010, we have made a number of strategic investments in our operating platform. These have primarily been related to bringing in additional personnel to strengthen our sales and product development teams. We have already begun to witness the initial payback from some of these investments, beginning with shelf space gains midyear and more recently the positive feedback from retailers on our 2011 product lines.

There have been additional critical investments in our business this year in areas, such IT and warehousing, so that we will have the necessary infrastructure in place to profitably grow the business. It is also important to note that, even with these additional expenditures, we have still grown year-to-date net income and EBITDA faster than sales at rates of 51% and 30% respectively. I am confident that when we look back at 2010, it will be viewed as a transformative year for our Company.

The strong performance of our products in multiple categories, including monitors, gear, bath and swaddling blankets, is further distinguishing Summer Infant from the competition and helping solidify our importance to retailers. We think this trend will accelerate in 2011 and beyond, based on our product pipeline and early commitments from our largest accounts, including several mass market retailers where we significantly increased our shelf space for next year.

We recently returned from the ABC show in Las Vegas and the buzz around our booth was fantastic. We have continued to strengthen our leadership position in our key categories, while quickly gaining market share in some of our newer businesses including cribs, which was a big focus of our product development efforts in 2010.

Another key focus of our recent R&D investments has been behind the launch of the Prodigy, our first ever car seat, which we announced at our trade show in mid-October. We are optimistic about the potential of this new initiative, particularly given the size of the travel segment, and have been very encouraged by the initial response from retailers and the amount of media coverage it has attracted.

A great deal of time and financial commitment was put into developing this unique infant car set and travel system. We believe that the number of innovative features included in the Prodigy, such as our proprietary SmartScreen installation technology and SafeGuard 1Adjust harness systems, will resonate with our target consumers and set it apart from other car seats currently on the market.

The introduction of this travel system, which also includes a standalone stroller, rounds out our presence in the gear category and therefore we are hopeful it will drive sales of other items such as high chairs, baby swings and play yards.

As you can see, there is a lot to be excited about, as we look toward next year. We have assembled a great team here at Summer Infant and everyone is focused on successfully executing strategies that we believe will lead to greater market share and enhanced profitability.

I will now turn the call over to Joe to review the financials.

Thanks, Jason. Net revenues in the third quarter of 2010 were $49.8 million, a 21.5% increase compared to the year ago quarter. This growth was driven primarily by an expanded product offering at existing customers and penetration into a larger number of stores within existing customers' networks.

We continue to benefit from the diversification of our product categories and the innovation in our product development efforts. Retailers are giving us more shelf space versus the prior year, due to their desire to consolidate their business with strategic partners who can provide them with a broad assortment of products.

Gross profit in the third quarter of 2010 was $17.9 million, a 20% increase year-over-year. Gross margin in the third quarter was 36%, a 40 basis point decrease from 36.4% in the third quarter of 2009.

The year-over-year decline in gross margin was due to higher commodity prices and higher closeout sales of discontinued products. Excluding approximately $1 million in closeout sales in Q3, 2010, gross margin was approximately 37%. On a sequential basis the adjusted margin percentage was slightly lower than the Q2, 2010 margin of 37.4%, as we had previously forecasted.

Selling, general and administrative expenses in the third quarter, excluding depreciation, amortization and non-cash stock-based compensation expense, totaled $13.2 million compared to $10.5 million in last year's third quarter. SG&A expenses increased year-over-year due to higher variable costs related to increased revenues, increased promotional expense as retail customers continue to advertise significantly during the quarter and additional investments in new product development, information systems and other critical areas of our business.

As a percentage of revenues, SG&A increased in Q3 versus the prior year. However, we were able to improve the SG&A margin to 26.5% in Q3 from 27.6% in Q2 of this year due to improved leveraging of our fixed costs. Our goal is to continue to reduce SG&A as a percent of sales as revenues increase in the future.

EBITDA was $4.8 million in the third quarter of 2010 as compared to $4.4 million in Q3 of 2009. Net income in the third quarter of 2010 increased to $2.1 million, or $0.13 per share, up from $2 million, or $0.12 per share, in the third quarter of 2009.

For the nine months ended September 30th, 2010, revenues have increased 26% to $143.4 million. Net income rose 51% to $6 million and EBITDA increased 30% to $13.9 million. Year-to-date net income includes sequential quarterly increases in depreciation and interest expense, which we project will continue to increase on a quarterly basis based on current forecasts. Also, year-to-date net income includes a 28% tax rate on a consolidated basis.

Looking at the balance sheet as of September 30th, 2010, net debt totaled $47.7 million. Our net debt to EBITDA ratio was approximately 2.7 times based on the trailing 12 month EBITDA of $17.9 million. We have significant availability under our $70 million credit facility.

Based on our third quarter sales performance and our current forecast, we now expect full-year 2010 revenues to be approximately $190 million, an increase from the $185 million we had previously estimated. Note that Q4 typically has lower orders of existing items due to the retailers spending more inventory dollars on Christmas items. We hope to partially offset that with first-time shipments of new products.

In terms of profitability we want to maintain a conservative approach, given the recent pressures we have experienced in gross margin and customer support. The $190 million we are projecting represents 24% growth over the $153 million in 2009 revenues, which we believe is a very strong performance given the current state of the economy.

As we noted in today's earnings release, we are still evaluating our exposure to this CPSD's warning related to all infant sleep positioners, while at the same time working closely with suppliers and customers to minimize any financial impact. We would record any potential one-time charge in the fourth quarter once we have analyzed all the relevant information. Net sales of sleep positioners are projected to be less than 1% of full-year 2010 sales and we hope to at least partially compensate for this in 2011 through shipments of other nursery related products.

Based on current forecasts for next year, we expect 2011 revenues to be at least $220 million and diluted earnings per share of at least $0.60. These projected increases reinforce our position as one of the leading growth Companies in this industry. We are highly focused on exceeding these projections, but we do anticipate experiencing some external margin pressures from both suppliers and customers in the near term, so we want to maintain a conservative posture in terms of bottom line projection.

We continue to project that our double-digit top-line growth will allow us to leverage our cost structure and therefore, grow net income faster than sales growth on a percentage basis.

Operator, we are now ready to take questions.

(Operator Instructions). Our first question is from the line Sean McGowen with Needham & Company, please go ahead.

I have a couple of questions. Is there anything unusual in the quarter, Joe, regarding the tax rate and what can we expect for the fourth quarter?

Nothing unusual other than fine tuning it a little bit. We were accruing at 30% and now it's 28% on a year-to-date basis, really just tweaking a couple of our earlier assumptions and 28% should be used for the fourth quarter. And for next year I would use 29% for the year.

Okay so it's just really truing up in this quarter that brought it down to both like 23 or something in the quarter?

Yes, that's to get you to 28% on a year-to-date basis.

Okay maybe, Jason or Joe, can you talk about the -- I mean the press release talked a little bit about a shift in sales from timing and some receipts. What kind of impact should we think about that having, not only in the third quarter but on the fourth quarter? In terms of what's the impact on profit and then are these that are not lost or could something bounce off at the other end?

Yes you'd like to say that automatically it's going to shift and make Q4 better by couple million dollars. I guess Q4 there's kind of a lot going on in terms of new products that we're trying to get out the door and so we're trying to, I guess, roll all that together and come up with a Q4 forecast that gets you to at least $190 million. So that certainly is part of it. It shouldn't just be lost sales but it's -- there's a lot that goes on in our fourth quarter typically with kind of retailers scaling back on kind of normal orders and at the same time we're trying to rev up the new product introductions and get them out the door. So it's all part of I guess the $190 million that we're targeting.

Okay the nature of those products, we're not sure what those are but are they unusually high or low gross margin and would the variable portions of that that's in SG&A of SG&A expense would that be out of line with the normal averages?

Normal, I mean yes it should be just normal stuff that we're talking about.

Okay, couple of others, I guess conspicuously absence in the comment on the fourth quarter is where that brings the guidance for the full year. What are you trying to avoid there?

We're not trying to avoid anything. I mean we are really looking at a range of revenue possibilities in Q4, so what we feel comfortable with right now is to say $190 million. We're trying very hard to exceed that number, but it's -- there's a lot of new product stuff that we're trying to finalize. So internally we're looking at a range of numbers. Obviously, whatever the top line ends up being, that's going to directly impact what the bottom line is.

Okay and then last question regarding closeouts, do you feel like you've taken all of the impact of closeouts in the third quarter? I mean obviously you can never tell what might need to be closed out, but do you feel like you've taken care of whatever you have visibility on in the fourth quarter?

Well we -- we're constantly cleaning up our inventory. I mean it's kind of a process that goes on throughout the year. I would say that we have adequate reserves for anything else we need to clean up and it shouldn't be any more than what we typically experience in a quarter if that's the question.

Well, I didn't know if you took some in the third quarter that you might normally wait until the fourth quarter to take. I mean it sounded like you were being extra diligent and wanting to end with clean inventories. I don't know if that meant you took some things a little earlier?

Yes, we didn't -- if closeout sales are, let's say, a little higher in fourth quarter, I don't think it would really -- we have the reserves built in and it wouldn't be affecting our fourth quarter if that's--

All right thank you very much. I appreciate it.

Scott Van Winkle, Canaccord.

A quick follow up on that closeout, is that $1 million -- that seems, it sounds like you're saying that's kind of normal for the quarterly run rate. Is that what it was like last year or in the second quarter of this year?

No it was higher in Q3 of this year, the Q3 we just experienced, than either Q2 or prior year.

Also, I think it's important to note that we have been -- our reserves, we've been accruing for it and it's not out of the ordinary.

It's an on going process. Sometimes it's dependent upon when the customers can take the stuff so we're constantly negotiating with certain closeout guys. In some quarters they can take more than others just based on they're open to buy.

Yes I was just trying to normalize margins maybe. And then on the margins, no shocker obviously, you're not seeing anything anyone else is on the cost side. What are your thoughts on pricing, probably not going into the fourth quarter here, obviously, but next year? I mean the category is healthy. Commodities are talked about more and more frequently now. I'm wondering what your thoughts are on maybe what the category does or what you do if this continues on pricing next year?

Well, internally we have talked about some price increases, especially revolving around commodities that are increasing rapidly, such as cotton. So there are things that are going to have to -- we're going to have to raise prices on simply because of the rate of expansion of the price increases or cost increases to us. So there is definitely pressure on that and I actually think that the market is -- would accept it because I think what we're hearing is is that it's not isolated to us by any stretch. It's really across the board.

And on the Prodigy launch, is there anything different about this product launch? I mean you called it out probably more so than I think I've heard you call out new products in the past. Is it more significant from a standpoint of contribution? Is it more significant from a standpoint of cost to launch the product? Could you maybe just add a little detail?

Yes it's a big investment. Developing -- first of all, developing the car seat, we've done it over a three-year period so we've invested money into the product. We plan on advertising it, so we have an advertising budget that we typically wouldn't put against our normal line, our normal way of introducing products that's more through the Internet and through PR and things like that and certainly advertising with the retailer. But this is the first time we really did -- it was our first live press conference, first of all, at the ABC show, which was a lot of fun, but I think more importantly it drew the right group of people to our booth and to really hear the story about the product and then start some real viral kind of marketing and PR amongst bloggers and amongst kind of influencers in the industry and that was kind of eventful for us.

And then the putting dollars against advertising and against promoting this product was pretty significant and car seats are a high ticket item. They're highly -- they're probably the number one criteria for moms is the safety kind of how the product is from a safety perspective and we put a lot into the thought process there. We have a number of patents and patents pending and it's just a unique product that really puts us into a category that we've been working on for probably four years and that is travel gear and baby gear in general, whether it be home or travel and we've been in the market. We have done okay in it but this is really what I would say is a big step towards solidifying our position as a brand within these categories.

And, from a category standpoint and from a kind of a market segment perspective, it's a very important category and a very important market segment for any juvenile company simply because of the influence it has on mom and on the consumer and the retailer for that matter. So it's an important one for us.

Yes I mean, given its significance both in effort and the opportunity, is this more of an investment in margin as well kind of longer term? Should if this thing were to become significant, would it change the mix and maybe be the platform for the next products or is it kind of end line?

I'd say it's -- I don't think it's highly above or highly below. I mean our goal in this is for it to be a cornerstone product within a larger gear line. I think it's a growth vehicle to really capture this market and, more importantly, it's a safety, a statement in safety. I mean, from a branding and from a category standpoint we are basically stating that this is the best product in the class and best in class in the category. And typically when we do that in a category we make a statement like that and the future usually is pretty bright.

And, Joe, I apologize. I don't have the historical numbers in front of me but did total SG&A dollars go down sequentially from Q2 and if I had that right I am kind of guessing at that. I don't think I've seen that before. Is there a reason why the absolute spending was lower if I've got that right?

Yes. I mean I guess, as we were looking at things, we tried to scale back as much discretionary stuff as possible really for this quarter so yes the dollars did go down from Q2 to Q3.

Okay great. Thank you very much.

Mark Argento, Craig-Hallum Capital.

When we think about your guidance for fiscal '11, the $220 million compared to the $190 million that you just got it to for fiscal '10, that's about $30 million in incremental revenues. When I think about a couple of the new categories you're moving into, cribs and seats, those are two pretty large, larger ticket areas. If we had to parse the $30 million how much would you think would come from new product introductions versus the continued growth of the core business?

That's a really good question.

I mean, generally speaking, new product introductions drive a lot of the growth that you see but it wouldn't just be in those two things you just mentioned. We are also getting nice placement with some of our core categories as well, categories that we've been in for a long time, so it's a -- but we might be able to place some of those core categories into customers that have never taken those categories before so it's I think we're looking at it the same. We're getting growth from a lot of different areas as we move into 2011. But new products clearly drive a lot of the growth numbers that you see.

I know you talked a little bit about shelf space. I mean, if you were to -- I'm sure you probably don't want to quantify but when we think about shelf space growth are you taking single-digit, double-digit increases in shelf space at most of your retailers? I am just trying to better understand kind of the is it on a per SKU basis you're selling more product or are you just putting more units on the shelves?

Yes I think we definitely have more items on the shelf but the performance of our current products on the shelf I think have actually notched up so I would say that it's both but new products drive the majority of it.

And then in terms of the when you think about -- I know the different pressures on the gross margin line of course, higher commodity prices but you also alluded to, wages, higher wages and also the FX impact as well. But, when it comes to wages and when you think about the fact that you guys are growing your business 20% plus a year and most likely will do the same next year, is there opportunity to go back to some of your suppliers and renegotiate your contracts that you have with them to better reflect that you're continuously becoming a bigger and bigger customer?

Yes absolutely. I actually think one of the themes for our 2011 is to kind of stay focused on what's winning, including our supply base. There we have a core group of suppliers that have helped us get to where we are that we continue to consolidate on and drive the business through them and they've been very supportive to that end and, as volume has increased, they've definitely worked with us on kind of controlling and if not at least dealing with the impacts of currency and labor and things like that. So I would say that, aside from certain commodities that have been really kind of through the roof, the normal increases in cost I think have been mitigated a lot by that volume and by working with key suppliers.

And then last question, coming back to the new product introductions, when you think about the car seat category in particularly, do you know how many car seats are sold domestically every year and would it be unrealistic to think that in a few years you guys could get a double-digit market share of that market?

The number of car seats sold, the number varies. I've read several reports that have pretty wide swings in the numbers but there are 4.2 million births. I believe infant car seats, which is the category we're entering in, is upwards of 80% of that, so I think it's somewhere in the 3 million to 3.5 million piece range. If you include convertibles and boosters in on that, the number goes up pretty dramatically so I would say that in the segment that we've decided to play in, at least this first introduction, we are going into a category that's probably 3.5 million units a year.

And when you're -- and it sounds like the product you're launching is kind of a higher end product and when -- if you were to look at or if there's any data out there to suggest, I mean how big is that in a say $200 plus car seat market out there? Is it fairly sizable?

Yes it actually is. I think, again, certainly a large percentage of consumers are shopping based on safety and if there is any purchase that they're willing to spend more on it's typically a safety item like a car seat and the product that we're offering is clearly positioned as a higher end, not the highest, but a higher end car seat and travel system and but it's also is positioned as having the easiest to install and safest features available in the market today.

And you're going to market I think Babies R Us is your first partner with the product or first retailer taking the product, is that right?

That's correct. They have a basically a nine-month exclusivity.

Great, appreciate the color. Thank you.

Liz Pierce, Roth Capital Partners.

Jason, did you say that for gross margin you anticipated it to stay around current levels?

Are you referring to in general?

Well, I thought -- and I don't remember if it was Joe when he was going through the numbers or in your opening comments, I just wanted to make sure I understood it correctly.

Go ahead, Joe.

There's pressure on gross margins. I guess that would be our overall comment on it so I guess we would continue to expect, near term anyways, that there's going to be pressure on gross margins. I think one of the questions you might be alluding to is with specific to the car seat and stroller category and that the question I think was seeing if we could expect higher margins because of that item and I think that's probably premature to expect that.

Okay, all right I guess I misunderstood maybe a comment in the beginning about the gross margin but I can circle back to you guys. In terms of the retail and the advertising part, have you locked in more or less what you're going to be doing or I guess the coop dollars for the fourth quarter or is that still to be determined as the sales environment unfolds?

Our program costs are typically set as a percentage of sales but then there are other types of promotional activity that we participate in and that piece of it is not fixed and for the fourth quarter it will probably be a little quieter than it has been year-to-date only because the fourth quarter is so focused on Christmas. But I would expect that it would pick back up again in first quarter when retailers really start focusing back on baby.

Okay and then in terms of the cost issues, I think in the past you guys have talked about on the electronics side not feeling as much pressure and I just wanted to do a reality check. Is that still kind of the way we should think about it or are you even seeing in some of the electronic components some pressure that might be due to weights and currency?

Well, maybe a little bit due to currency but not so much due to commodity prices.

Okay so still seeing a typical kind of downward trend in electronic component prices?

Yes maybe stabilizing, downward is probably not actual.

Too optimistic?

Yes that might be. I mean, any downward pressures that we've had in electronics have been a result of engineering and our volume quite frankly of being able to have a better purchasing power because of our volume but the actual commodities I don't believe have come down a whole lot. It's stable. That's probably the best description.

Okay and then on the suppliers that you say you're consolidating do you still feel that you have a diverse enough supplier base, that you're not totally beholden to anyone particular supplier and that [directly] your relationships are pretty long, go back with these guys so--?

Yes that's a good question. We typically look at our supplier base in terms of commodities and categories so, for instance, there are furniture suppliers and there are baby gear suppliers or electronic suppliers or more of the plastic and toy suppliers so I would say within each one of our kind of key segments of manufacturer we have multiple suppliers. So were not locking ourselves in too tightly so that we don't have any kind of options or any kind of leverage but, on the flip side of that I would say that we have some very good suppliers that are -- have partnered with us and continue to partner with us and help us grow and contribute to our overall success.

So it's always a balancing act trying to make sure that you don't lock in too tightly but yet you have key people that you're partnered with. But I don't think we're too -- I don't think we've narrowed it down too much, quite frankly. I mean, it's not like we're -- we still have a healthy group of suppliers.

And then at what point -- I think the agreement for Prodigy with Babies R Us is what, for nine months, is that right?

Correct.

And so I mean the way the agreement was written you will be able to open that up to other retailers and then do you anticipate coming out with kind of like what you've done in order to serve different retailers, kind of different I guess updates or different--

Yes, yes. We have a number of strategies in place, including differentiated fashion. We actually are working on differentiated features that would potentially either increase or decrease the retail pricing structure so we may add features that increase the price or change the platform of the -- we're working on additional items currently including additional stroller platforms. So our goal is to be able to move up or down on the retail scale, not tremendously, not -- we're not going to reduce the price in half but we do feel like there needs to be a good, better, best strategy, even around a premium product, so we are working on that. Ad certainly all retailers expect a level of differentiation so that's part of our strategy.

All right and, Joe, just a couple quick ones for you also, depreciation and amortization and I think interest expect you said that we should think that they'll continue to grow from current levels?

Yes.

Okay and then any update on what's happening with acquisitions? I know you guys have said before things have gotten a little bit expensive. Are you seeing any change? Is there anything out there that you find particularly interesting or do you feel like next year your plate is full with Prodigy and maybe some other things?

No I think we're still interested in acquisitions that fit our profile. There actually is an interesting group of companies out there on the market today and we continue to investigate those. I would say there's, again, nothing imminent but I do think that there are some real interesting things going on out in the marketplace right now and I think you will see some larger names being announced at some point in time in 2011 and maybe a few smaller deals also. So we are still definitely interested and we have different thoughts around different categories but we continue to look to strengthen categories that we may not be -- we may need kind of some key cornerstone kind of things or new categories for that matter would be of interest to us, as long as it was kind of enough on the plate to make it worthwhile to get into, so we're definitely interested.

I would say valuation still is certainly a topic of interest though because people recently have been looking for a lot of money for their businesses so that's something that we'll have to wrestle to the ground obviously.

And you would consider acquisition right to help kind of your international efforts, correct?

Absolutely yes.

All right that's helpful. Great thanks, best of luck.

(Operator Instructions). Arnold Brief, Goldsmith & Harris.

Just a couple of questions, the soft goods market is characterized by a lot of small companies, very fragmented market. Could you give us a better idea in the gear end of it and the baby seat end of it? I think the concentration is much more intensive. What kind of advertising support are you going to need to get this off the ground? What kind of market share does some of the competition have and could you give us some idea how many SKUs you're getting into VRU and initially?

Which lines are you referring?

On the seat business.

Yes on the car seat, yes they are supporting us. We're doing four different fashions and we -- in store we have a travel system and a standalone car seat and a standalone stroller. And we have several other fashions, alternative fashions, on line and from a shelf space standpoint that's a pretty big commitment and the assumption is if it's successful then we'll continue to follow up with additional products and placements.

How about the market, advertising support that this kind of category needs, the market share position to some of the major competitors, could you give us some idea how it differ from soft goods?

Well, I think part of the commitment from Babies R Us was to get behind it also so our expectation is that it will be supported with retailer advertising as well as a prominent placement in the store and as well as some neat stuff on line that we're doing with them. Our advertising, we are advertising as well and we typically, as a Company, don't put a lot of dollars against advertising but on a dollar, a sales dollar basis, we are actually putting pretty significant dollars against this program and where we plan on both print on line and PR activities. We also are going to do some in store activities as well to promote the product.

How about the competitor situation in this category? Is it -- I think it's quite different from the soft goods business.

Well, car seats are a very competitive category. I mean, there are some real big names and people that have great reputations and have done really good things over the years, so it's certainly a tough category to compete in. I think our expectations are reasonable and I think that we kind of saw our opportunity as one based on kind of upping the ante. In other words, we weren't going to come out with a "me too" product and think we were going to compete against the big names in this category.

We really felt like we needed to do something that was unique and innovative and positioned differently than other seats in the market. And that's what we did. I mean we have two critical parts of our car seat defined here, that number on is fit to the car and if you read statistics, seven out of every ten car seats nationally are not installed properly and our installation system is as easy as any, easier I should say, than any on the on the market and we will have video up on the website very shortly to see that if not already and we also have in store talkers and things going on so it's very easy to install into an automobile. You don't have to kneel on it. It's all very -- it's something you can do from outside of the car and not break you back.

And then secondly, the fit to the baby, our one adjust system actually when you have one strap that once you have the child in the five-point harness you just pull this one strap and it automatically tightens and the height of the shoulder straps actually conform to the baby, no matter how tall or big that baby is. And it's not manual, it's automatic so all you do is pull this one cord and it adjusts the whole fit to the baby. So fit to the car, fit to the baby was real key in our kind of design philosophy so both of those features are patented as well.

When will we see it on the shelf?

I believe it will be late January or early February.

And then last question, did number of births in '08 and '09 have been down? Do you track any lead indicators or data, which would indicate it has turned up or it's about to turn up?

I believe it's stabilized. I don't believe it's turned up yet and from just market intelligence so to speak, and even local, when we talk to our local birthing hospital, which we're very close to. In general, births are down to your point over the last couple of years but they've, if nothing else, stabilized as of late.

Thanks very much.

(Operator Instructions). And that does conclude the question and answer session. I would now like to turn the call back over to management for closing remarks.

Thank you, everyone, for participating in the call today. I would also like to thank all of our employees and other stakeholders for supporting our Company and making it one of the fastest growing in the industry. I look forward to speaking with everyone at our fourth quarter conference call. Thanks again.

Ladies and gentlemen, this concludes the Summer Infant third quarter fiscal 2010 earnings conference call. Thank you for your participation. You may now disconnect.