Summer Infant, Inc. (SUMR) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Summer Infant first quarter fiscal 2011 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 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 be available on the Company's website as well.

Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements, and Management may make additional forward-looking statements in response 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 on a number of estimates and assumptions, and are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking statement 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 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 31, 2010, filed on March 22, 2011, 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 are referred to the full discussion of [Summer's business] contained in some reports filed with the 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. 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. We've had a strong start to the year, and I'm very excited to update you on the progress of our ongoing initiatives. After that, Joe will discuss our financial results and update you on our guidance. And then, we will be happy to take questions.

The first quarter was highlighted by significant organic growth of almost 33%. The Investments we made in our product development platform, including the restructuring of our product development department into 5 distinct teams, is paying dividends. Our 2011 product line, which is stronger and more focused than past years, has led to increased shelf space for most of our major categories, including significant new placement for furniture as well as many other categories, including monitors, bath and nursery. This fueled a record first-quarter sales performance.

At the same time, our recent expansion has improved our customer revenue concentration, as we have been able to diversify our revenues across a wider customer base. The response in our international markets has also been very good . While still relatively small compared to the US, we achieved significant growth in several countries, with Canada being the largest growth market for us in the first quarter.

In total, the international business grew more than 30% in Q1 versus the prior year. We are working hard at expanding our distribution globally, and we'll keep you updated on our progress. At the end of the first quarter, we announced our acquisition of BornFree. With this transaction, we extended our reach into the $1 billion high-margin feeding category.

BornFree is a leading BPA-free baby feeding brand, and is currently sold in more than 19,000 retail locations. It's a premium product offering, with great brand equity that will help strengthen our position with pre-natal moms. We are currently integrating our 2 organizations, and expect to realize [profits] once this process is completed sometime in the back half of this year. More compelling, are the growth opportunities we believe that exist from the combination of Summer Infant and BornFree. We have already developed a new feeding team in Rhode Island to supplement the existing efforts of the BornFree team. We are excited about the product extensions our team is already working on in the feeding category. And, we are optimistic about our prospects for increasing BornFree's retail presence in the current year.

At the same time, we will look to leverage BornFree's relationships in the food and drug channel to create new distribution opportunities for some of our core product categories. Note that most of the efforts we are undertaking will primarily benefit revenues in 2012 and beyond, since most Plan-O-Grams are already set for 2011.

We are in the final stages of completing another significant product development project, our new Prodigy Car Seat & Travel System. We have taken our time with product to ensure that is has the highest-quality standards before we introduce it into the marketplace. We currently project that the car seat will go into production sometime during the latter part of Q2, with initial shipments to customers occurring in Q3. We are very excited about this product line, and we believe that it will greatly enhance our overall gear offering.

Another initiative we have been working on aggressively is reducing our inventory levels. I am pleased to report that we reduced inventory from almost $46 million at year-end, to just over $41 million at March 31, end of Q1, before adding back the inventory that we acquired from BornFree. We have taken action on a number of fronts, including reducing our lead times with suppliers, continuing to work down excess inventories and, most importantly, focusing our product development efforts with each product development team so that we come out with a tighter line of products that can still generate significant top line growth.

This in turn is leading to fewer unsuccessful items being introduced. And therefore, we have been working down the excess inventory levels and improving turns. As we expected, gross margins were down from a year ago. The 2 main drivers of this are the continued increase in sourcing costs and the change in our product mix.

With regard to cost pressures, we are seeing higher prices for many commodities. In the latter part of 2010, we experienced significant increases in specific areas such as cotton. We have been able to pass along some of these costs by raising prices on selected items, primarily cotton-based items like swaddling blankets and bedding.

The first phase of price increases went into effect at the end of the first quarter and will continue into the third quarter. Therefore, we expect to see some benefit to margins later in the year from these actions. In terms of product mix, the growth of furniture as a percent of overall sales from the increased placement with retailers is also impacting margins, as cribs typically carry lower margins than our other categories. We had a very strong initial selling of cribs in Q1, as retailers took their initial shipments in order to set their shelves and stock their warehouses for the typical 6 to 8 weeks worth of inventory. While we expect furniture to grow year over year during the remaining 3 quarters of 2011, the category's contribution to the sales mix will moderate from Q1 levels.

On the other side of the equation, our acquisition of BornFree will help to partially offset the impact from the mix change as the margins in the feeding category are typically higher than other categories in the industry. So, the end result, we think, will be that gross margins will be down on a year-over-year basis, but will improve sequentially as the year progresses. Despite the pressure on gross margins, we are still projected to grow earnings almost 30%, driven by meaningful operating expense on 20% plus sales growth.

Our strategy of product innovation, diversification, and development is leading to market share gains and improving our overall retail relationships. With our acquisition of BornFree and the rollout of our Prodigy Car Seat System in 2011, we now have a presence in almost every major category of the $12 billion juvenile industry. And, I am confident we have the platform and expertise to significantly expand our reach in the US and overseas in the years to come. Joe will now walk you through the financials.

> Thanks, Jason. As noted in the press release, the income statement amounts for the first quarter of 2011 are for Summer Infant on a stand-alone basis, and do not include the results of BornFree, which was acquired on March 24, as the BornFree contribution for the last few days of March was immaterial. However, the balance sheet data, which I will review shortly, does include the assets and liabilities of both Summer Infant and BornFree. ¶ Net revenues in the first quarter of 2011 increased 32.5%, to $58.5 million, from $44.1 million in the first quarter of 2010. Our growth came from multiple areas, including expansion of existing product categories, increased placement at a number of existing customers, and international growth.

Gross profit in the first quarter of 2011 totaled $19.7 million, or 33.7% of net revenues, versus $16.9 million, or 38.4% of net revenues in the prior-year period. As Jason mentioned earlier, gross margin was negatively impacted by increased sourcing costs and the change in sales mix, as furniture carries lower margin than our other categories.

Selling, General and Administrative expenses on a GAAP basis were $15.3 million in the first quarter of 2011. Excluding excess costs associated with video monitor re-labeling, SG&A expenses were $15 million, or 25.7% of net revenues, compared with $12.6 million, or 28.7% of net revenue in the first quarter of 2010. We are very pleased with our ability to leverage our expense base on the higher sales and drive a 300 basis point-improvement in SG&A as a percent of sales.

Adjusted EBITDA, which excludes the 2 items we have detailed in the press release, increased 8%, to $4.6 million in the first quarter of 2011, from $4.3 million in the first quarter of 2010. EBITDA margin in the first quarter of 2011 was 7.9%, compared with 9.7% in the prior year. On a GAAP basis, we reported net income of $1.2 million, or $0.07 per share, compared to net income of $1.8 million, or $0.11 per share, in the first quarter of 2010. Excluding the video monitor charge of $211,000 and $635,000 of deal fees related to the BornFree acquisition, we reported non-GAAP profit of $1.8 million, or $0.11 per share, in the first quarter of 2011. This included a tax rate of 24% of pre-tax income.

Looking at the balance sheet, as of March 31, 2011, net debt totaled $70.2 million. The increase in debt from December 31, 2010 is primarily attributable to the acquisition of BornFree, which included a $14 million cash payment as part of the total purchase price. As a reminder, we signed an amended loan deal with our existing lenders that increased our borrowing capacity to $80 million, with an additional $20 million available beginning in October 2011 under an accordion feature.

Consolidated inventory, including what was acquired from BornFree, was $45 million at March 31, 2011. Excluding BornFree, Summer Infant inventory decreased $4.5 million, to $41.4 million from December 31 levels. We are continuing to focus on improving inventory turns, as Jason detailed earlier.

Turning to our guidance. Based on our first-quarter performance and our current revenue projections for the remainder of the year, including the contribution from BornFree, we are raising our full-year outlook. We now expect 2011 revenue to be at least $235 million, up from our previous expectation of at least $220 million. Diluted earnings per share now projected to be at least $0.61, excluding non-recurring charges, deal fees and future transition costs related to the integration of BornFree. As Jason outlined earlier, we anticipate gross margins will improve sequentially compared to the first quarter of 2011. However, they will be down on a year-over-year basis due to higher commodity costs and a mix shift to relatively lower-margin items.

While we are projecting improved profitability in 2011, driven by meaningful expense leverage on our higher sales guidance, this will occur primarily in the back half of the year once the majority of our price increases have taken effect and Born Free has been fully integrated. There other line items which will be impacted by the BornFree transaction for the rest of 2011. Specifically, interest expense will be higher due to the $14 million cash purchase price, which was funded by bank debt. Amortization expense will be higher by an estimated $200,000 per quarter due to the increase in tangible assets from the acquisition which will need to be amortized. And diluted shares for earnings per share will be higher due to the 1.5 million shares issued to the shareholders of BornFree as part of the purchase price. With that, operator, we are now ready to take questions.

Thank you. (Operator Instructions) Our first question comes from line of Mark Argento with Craig Hallum Capital.

Just some more housekeeping things in terms of the guidance. Joe, maybe you could give us what the year-end share count would be in your $0.61 number. And, what kind of interest expense should we have in our model here going forward?

For the next 3 quarters, the share count should be somewhere around 18.4 million. That's basically adding 1.5 million shares to Q2, Q3, in Q4. So, on a blended basis for the full year, that Probably gets you to about 18 million, because Q1 was only 16.8 million shares. And then, interest expense is going to go up. From Q1 levels, it's going to go up by basically $14 million times 4% on an annual basis. That's kind of how it's going to go up.

And in terms of commodity costs, I know it's something you have been very focused on. Have you had any success in not only the commodity costs but old also labor costs, production costs, working with any of your vendors or manufacturers and trying to get some relief there?

I would say that there's been a little bit, but I think the new norm is if you can hold pricing, you are doing well. Getting cost reductions is probably not in the cards right now, unless commodity prices soften up. I know there's been a little bit, but it's still pretty tough out there. There's been some really good write-ups on the Chinese labor market and how that's going to be increasing for the for foreseeable future. And obviously, plastic is tied to oil prices, and cotton doesn't seem to be really relenting. So, the good news for us, is that I think we have gotten price increases, not across the board, but again, probably half of our product line we've increased our pricing and kind of made up the cost increases that we've received. But, I think cost decreases at this point are really engineering-based versus commodity-based.

In terms of the BornFree acquisition, have you started to market that product into some of the other accounts that maybe that product hadn't been in yet, but that you have relationships with?

I think our big move right now in BornFree, we feel that the line really has a premium positioning. But, it was also based on BPA-free, which most bottles have moved to at this point. So, we are aggressively working on repositioning the product, because the product truly is a superior product. And how you position that with consumers between the materials that it's made of, the fact that it doesn't leak as compared to the other competitors, or at least several of the competitors. All the materials, the wall thicknesses, it's a very well-made product. That's 1 of the things we really liked about it was, it delivers. They recently did a clinical study that proved some of their claims, so I think that we were getting beyond some of the claim issues. So, our re-positioning, re-packaging strategy is, we're fast and furious. We want to get it out there for January 1, and then we have additional line extensions that we're working for January 1 and throughout 2012.

Thank you. Our next question comes from line of Sean McGowan with Needham & Co.

I was looking at the gross-margin drop and considering the factors that you cited there. Can you give us some idea of how much of that shift is due to mix? Maybe it's another way of asking how much lower are the margins on furniture? I would assume somewhere in the low 20s%. Can you help us on that?

Yes. That' s a fair guess. Really, if you're talking about the year-over-year decline, from 38% to 33%, the mix issue is probably going to drive 60% of that number, that percentage drop. And then the balance would be, really, the higher commodity costs that started kicking in during 2010, and that we are saddled with now. Q1 of 2010 -- actually that 38% that we generated in Q1 of 2010 was actually historically a pretty good number compared to where '09 was. So, that was kind of the high watermark before all the commodities started increasing.

Okay. And looking forward regarding inventory management, would you expect the pro forma type of inventory numbers to be down in subsequent quarters, the way it was in the first quarter? Sort of ex-BornFree?

We've budgeted it flat to where we are at the end of Q1, but we're not resting on that. I think we're going to continue to strive --

That would be pretty good considering the sales growth.

Absolutely. But, even that we're not really satisfied with. We still feel like we can get it down from there. We're not really resting on that.

Okay. Last question for now. How would you characterize the retailer appetite for carrying inventories on their books and taking deliveries now? Maybe compared to 3 months ago or at the end of 2010?

That's a great question. . We are significantly up with most of our customers, but our largest customer, we're actually flat while retail sales are up almost 30%. Our shipments to that customer are really pretty much flat, which basically says that they've been cutting inventories. We're up such a large percentage with other retailers, it's tough to really sort out what their inventory position is on the go-forward items versus the new items. But I think generally speaking, retailers are keeping tight inventories. And, my belief is they can only do that so long. They can only reduce inventory so long, and then you get to the point where you just need to order more product and kind of feed the pipe.

When you said that retail sales were up 30%, you meant the Summer product?

Of our product, yes.

Thank you. Our next question comes from the line of Scott Van Winkle with Canaccord Genuity.

Joe, a couple questions on the guidance. One, is that 24% tax rate what you're assuming for the full year? And then 2, the revenue bump is nice. The acquisition gets most of that revenue bump, and you had such a strong Q1, I'm wondering how that kind of plays out?

The tax rate you should use, is 24% for the full year. There is actually some other stuff we're working on with the BornFree deal. They enjoyed some favorable tax situations with their Israel operation that we are trying to take advantage of, But for now ,you should just stick with the 24%. We're trying to be conservative on the top line in terms of our guidance right now. We're working very hard to obviously beat those numbers, but I guess I would look at it as hopefully, a conservative number in terms of the top line guidance.

And as we look at gross margin and consider the commodity situation, wages, et cetera in China, last year in Q1, you talked about, a very good number, that north of 38%. Q2 was a pretty good, then you start to see it tail off a little bit in Q3. Is that when you really started to see headwind on the commodities side? And then, with selective pricing and what you're putting through the back half, can you offset half of it or three-quarters of it or all of it?

Really, the costs started going up in the final stages of Q1 2010. That's where was really started to first see it, so every quarter in 2010 we got dinged a little bit more as we had a full quarter worth of activity. So, it was 38% in Q1, then 37% in Q2, then 36% in Q3. It started happening kind of in late Q1 of 2010. And really, certain categories really got hit significantly as the year progressed, such as cotton. That's kind of how it flowed last year. And now, here we are in Q1, we've taken all the hits, basically. And we're living with what happened last year. I think the price increases are not going to get us up to the 2010 levels . You're going to have some margin improvement just on price increases. You're going to get also some margin improvement from BornFree products being in the mix, because that category is generally a higher-margin category. So, we'll be taking it up as the year moves along. But, I don't think you're going to get to 2010 levels.

And, with the re-labeling necessary in the video monitors, the headlines concerned me a little bit. I guess in hindsight, that was grossly over done. Has there been any lingering impact? It doesn't appear to be the case?

No. I think the only impact that we have seen, is we had a blip in returns in the first quarter, but I think that should normalize over the rest of the year. And, I think generally speaking, customers did not negatively react to the news. If you go on a lot of the websites and social media sites, I think consumers are basically feeling a little insulted by the whole thing because the word recall, you think means recall. But, the way CPSC uses it, it really means just simply an announcement of information. And, our recall was really just giving consumers -- first of all, alerting them to the potential, and then giving them warning labels to put on the ends of their power cords, which is a serious issue, I don't want to take it lightly at all. But certainly, every cord in the nursery is subject to the same issue. So, 1 product being recalled, it really should be across the board, an alert to moms, which actually CPSC did back in the fall. But, we were trying to be a good Corporate citizen, letting people know that this potential exists.

On BornFree, a lot of enthusiasm around the opportunities in the feeding category. Does it go beyond feeding? Is there anything else you can do with that brand and its connotation in child safety?

The person that's running that team has a marketing plan that involves a number of other categories. But, our first priority is to shore up the product that's on the shelf, get it up to our kind of standards as far as packaging, outlook, messaging, positioning et cetera. Make sure that the product from 1 product to another -- in other words, the feeding isn't a product, it's really a system. It's a complete line from soup to nuts on helping mom feed their baby, sterilize their bottles, clean their bottles, et cetera, and transition to toddler feeding. So, what we're working on, is getting all of that consistent and working on line extensions that fits with an infant feeding and transitional feeding, and focus on that, strengthen that, get our shelf position and our message to consumers consistent. And then, we think the sky is the limit with the brand, because we think it's a great brand, we think we can leverage it in a number of other categories.

Thank you. Our next question comes we line of Liz Pierce with Roth Capital Partners.

Could you talk a little bit about on the furniture side with the cribs, and what the next step is with furniture?

Yes. That' s a great question. After we acquired Butterfly Living, our job is really to understand the category, which is quite different from any of the other categories that we are in. Get our arms around that, reposition again. The price points that they were working with we felt were too high. We went in with very sharp pricing, and we won a lot of business. Now, the challenge is, how do you make money on that? And I think that's what we're really focused on. It's a combination of pricing, cost, and turns, and how you transact the business. Because furniture is very big and bulky and the more efficient you can get the supply chain, the more everybody makes.

And so, our focus right now for 2012 is really, how do we build a business around a category that does carry lower margins than the rest of our business, but that we believe has the dollars and the leverage to make a lot of money. So, our challenge is how do we turn that corner between low margin and high volume to be at least a moderate margin proposition and continue to drive the top line volume. It doesn't take a lot more overhead to do a lot more business. That's the good news in furniture.

That was actually my next question. In terms of the teams and the resources allocated, so you feel that you can leverage what you have right now?

Absolutely. Yes.

And, Jason, maybe just an upset update on the car seat. It sounds like you're going to launch this in Q2, going to go into production and shipping Q3? Are the terms still the same in terms of [are] you having that exclusive?

Yes, it is. The delay really was -- we actually have passed all the testing. In our evaluations, there were some lifecycle things that we wanted to address so that 5 years from now, that car seat is still functioning as good as when you purchased it. There were a couple of issues with advocates that we felt like were worth addressing before we put it in the market. So, we're trying to do diligence around all aspects of the product. You can get the product right, and then other pieces of the picture need to be accurate also. So, we're trying to have a very successful launch that is supported by the advocate community, and they see the product as having addressed all their concerns and being the best infant car seat in the marketplace. Anything short of that, we're not really happy with. So, we feel like the latest round of improvements will get us there.

Okay. . And then, it goes first to [BRU,] and then they have 6 months or 9 months? I think it was 9 months.

Yes, that's correct. We are working on other extensions of the product for other retailers.

Other extensions, like a whole Prodigy system? Or, offshoots of it?

Offshoots. Still a Prodigy, yes. But just different platforms.

And you said that BornFree was in 19,000 locations?

Yes. I think 1 of the nice things that you get with BornFree is you get food and drug placement, which we've never really concentrated on. We've always felt that our product line wasn't quite the right mix to be selling into food and drug, CVS and Walgreens and others, Kroger's or any of the big food and drug stores. And as a class, you really kind of have to have a certain mix of products to make it worth their while and your while to call on them. When you combine our unique product offering, I think we start getting a nice assortment of products that would fit nicely within that channel of trade that makes sense for that purchase for a mom that's passing through or a mom or dad that are going out to get some medicine and need to buy something for the baby. It's typically a one-off purchase. You're not going shopping for the baby, it's more of a spontaneous kind of thing.

An add-on purchase.

Exactly. So, there's a certain mix, and feeding obviously is one of the lead categories in that class. And now that we have the feeding product line and their placement is already in those -- Walgreens and CVS are the 2 primary, but there's others too. It's a natural to then lead in with other products that we have, such as infant health or swaddling or, there's 3 or 4 other categories that we think that we can get some placement in. Travel accessories, things that are kind of on the shelf that would be that one-off purchase.

And of those 19,000, like the food and drug, could you give us just an estimate of how much -- is 50% of the new for you in terms of [food?] Do you understand what I'm asking? Of all the locations, how many of those would represent new for you?

I see. Probably 75% And that probably represents 20% of their sales. Still the majority of their sales are in the classic BRU, Bye Bye Baby, Target, et cetera.

But in terms of getting to add-ons, that's a lot of new real estate.

Yes. I think we're pretty excited about it. And we have a couple of sales people that are very familiar with that class of trade. They've jumped in, and we've already had, I think, very meaningful meetings with some of those buyers. It's just a new channel that we feel like we have products that we can work with them and be successful with.

Our next question comes to the line of Lee Giordano with Imperial Capital.

I have a follow-up on BornFree. I'm wondering if you can comment on the margins on infant feeding versus your other categories currently. And then, secondly, how fast do you think the business can grow? And do you have a market share goal or target longer term?

Yes. Let me see if I can put that in context here. First of all, the positioning is the premium product in the market. BornFree is probably the most expensive feeding system in the marketplace, in terms of bottles and bottle accessories. Having said that, our expectation is not to take 50% of the market share. They probably represent 5% or 10% market right now, probably on the low side of that, probably 5% to 7%. And I think realistically, we could be 15% or 20% of the market with that brand with the proper line of products and with the proper placement of those products. So, there's plenty of work to do. And 1 of the other beauties of feeding is it's very universal, so you can take that line to other markets around the world and sell that line in.

One of the reasons I think feeding companies in general have higher multiples attached to them is because it's such a universal product that can be sold into almost any market worldwide. So, that's another piece of this that helps, is that it adds to our international business and can be an important part of that international product offering. Margin-wise, it typically is 1of the higher-margin categories in the industry for a lot of reasons. One is, brand equity is very critical in that arena, so mom is really seeking out oftentimes a brand before she ever hits the store. She's done her homework, she's been online, and she's done a lot of research. That's where BornFree has been very strong, is there social media and advertising campaigns.

They have for their size, a tremendous amount of PR and outreach directed to consumer. They have a network of ambassadors in their 3 or 4 key markets, and they've done a good grassroots job of getting the word out and getting moms tied into the brand. We think we can take that and take it to the next level. All of that work justifies a higher margin, because there's a lot of behind-the-scenes work and there's a lot of equity in the brand. Any brand in the feeding category that's on the shelf demands a higher value. So we think that it also enhances our value as a Company because it puts us in this category. And there are other things we can do in the category. So, we feel like it's an entry into something that has a very large potential.

Lee, just to add on to that. The gross margins are going to be higher. But as Jason said, generally speaking, more money is spent on the public relations and marketing side of the equation than perhaps some of the other categories that we're in today. The higher gross margin doesn't necessarily all drop to the bottom line, because there's more money spent in kind of the PR side of the equation.

(Operator Instructions) The next question comes from the line of Sean McGowan with Needham & Company. Please go ahead.

I had another follow-up question for you, Joe. Standing where you're standing now, looking out as far as you can afford to look, is there any reason you would know that the tax rate would change dramatically in 2012? Is there anything [temporarily] depressing it this year that would cause it to go up next year?

No. I think it's safe to go with the 24% for next year as well.

Thank you. Our next question comes on the line of James Fronda with Sidoti & Company.

In terms of any build-up of cash, what you intend to do with it?

Right now, we have about $70 million outstanding on our line of credit, and we're hopeful by the end of this year that we would be able to pay that down a little bit. It all depends on how fast we grow this year. And so, at the end of the day, we're not going to have tons of excess cash. We're just going to have less amount outstanding on our line of credit

Okay, that's what I wanted to know.

I would also add to that is that we are also continuing to look at other acquisitions that we have working in the pipeline. But the are, generally speaking, small. And so, it's not like we're going to go out and spend a lot of money, but we may use a little money of it for additional acquisitions to fill out the line.

Think you. The next question comes from line of Rob Straus with Gilford Securities.

First, when you think about the growing scale of the Company in terms of sales, and clearly, you are in an increasing number of large categories for the segment, what are your thoughts regarding manufacturing, consolidation? And what are the opportunities there?

That's a really good question. We actually have been engaged in some of that in the last 6 to 12 months. We are consolidating our warehousing on the West Coast. And with that, we are also consolidating our domestic manufacturing to probably 3 manufacturers on the West Coast as well, which has been good in terms of the overall cost of those goods, including transportation, because they are all very close to the warehouse. On the Far East side of it, we are continuing to work towards sourcing in other parts of Southeast Asia, including Thailand, Vietnam, Indonesia, et cetera. And where possible -- the reality is that China's a very strong manufacturer, has a strong manufacturing base. And we have very strong partners there. So, it's not like you're going to see a big shift.

But, I think the realization is that we need to be continually looking for new suppliers and new places to make product. We have been consolidating. Last year, in the first of 2010, we went into the 2010 with probably 40-plus manufacturers, and we probably cut that by a third. Again, consolidating into fewer, larger manufacturers out in the Far East. And we continue to do that. We believe that to partner with our best manufacturers is definitely the way to go. And to control costs, if not save money. So, that we continue on. My Board -- we have talked about manufacturing and even vertically integrating, and we just don't feel like we're at that point right now. You feel that our time and energy should be spent expanding our market and expanding our brand and our product offering versus putting capital into manufacturing resources.

Okay. Jason, you, on the call I think, mentioned something about Prodigy in that not only confirming that BRU has their 9-month exclusive, but that you may have some Prodigy offshoots. Are those offshoot opportunities within the BRU-exclusive period?

Probably not. What we're really looking to do is, we believe the real innovation in this category is going to take place at the higher end of the market, not unlike what we've done in other categories. So, we're driving it up, not down. We're taking the innovation that we've developed in that product and driving it to higher platforms. If the Travel System at BRU is going to be their highest-price travel system along with 1other brand, if we go into other channels or take it to other customers, we're going to take it up, not down. I guess that's the point. And do it with more -- develop other platforms, or instance, higher-end strollers or more features. Whatever we choose to do, it's going to be on a more premium-based platform.

And in regards to the BornFree platform, regarding the size of the feeding category, what percentage of that is the premium segment of the category?

That's a good question. I think actually the low end of the segment actually is probably 20%. The middle probably 50%, and the high end probably 20% to 30%. That middle portion is really the build of the sales, and the brands that occupy that are the big national brands that have strong presence across many channels Many of them are 50-, 60-, 80-year-old companies that have been in feeding for a long time. They occupy that better kind of [offering. A lot of the lower-priced goods have a tendency to be brands that have 1 way or another either not kept up with development or simply choose to position themselves as an opening price-point product line. BornFree, for a number of different reasons -- 1 is just simply the cost of the product -- going to BPA-free, they've used a material that is 3 times as expensive as the material that everyone else is using.

So, it's a really high-quality product. We also are introducing other bottles that are less expensive, but still premium-priced and positioned at a premium price point. So, I would say 20%, 25% is probably a realistic number. Because 1 of the things that BornFree has also done very well is really get the support of kind of the celebrity mom. And 1 of the things that they pride themselves on is, whenever you see someone in the media that's using a feeding product, 9 times out of 10 it's a BornFree product. So, they position it very much as a premium-priced product offering, and it really carries with that a premium price partly because of cost, partly because that's where they want to be.

And, I'm hearing you correctly, going forward for now, your strategy is to keep BornFree entirely at the high end of the marketplace. Is that correct?

That's correct. But, it's not to say that we won't come out with other lines at good and better pricing. It won't be BornFree product, but once you're in the feeding category, I think it allows you to manage and develop other lines.

Last question. Regarding negotiations that you're having with your retailers for price increases, -- and you may have done this already -- but if you can give me just some detail on the feel of how those price increases are offsetting the commodity price increases that you're experiencing, especially for the back half of this year. Are those fully offsetting? Are they partially offsetting? Just give me some direction there.

Yes. I think it fair statement would be overall, partially offsetting. Within some of the categories that we've targeted that have had specific higher-than-average price increases, such as cotton and certain resin-based products that are heavily weighted towards resin and labor for that matter, we've gone up and actually covered the price increases, if not then some.

Our final question comes from line of Doug Thomas with JET Investment Research.

Just a couple quick questions. Just to follow up the last questioner, are you finding that you're getting some support from retailers in terms of current and potential future price increases? Are your competitors also following suit? Some of those areas, liked you talked about today, were obviously you're the market leader, and at the high and. You really have an advantage, right, with working with retailers that actually [be] the first to [increase] prices?

Truthfully, I think in the area of [soft lines], we were probably 1of the last manufacturers that went into retailers and asked for price increases, because by the time we were knocking on the door, I think they had heard it many times. We were waiting for it to settle, because, as I'm sure most of you are aware, cotton prices, for example, were all over the place last year. Everybody was constantly chasing it. It went up quarter by quarter, even month by month. So, we were chasing it. We didn't want to raise prices and then 6 months later go back and raise prices again. So, we were kind of biding our time, waiting for it to kind of level off a little bit, which we think it has at least to a degree. And then, we went back for 1 set of price increases.

Many of the manufacturers that have a much heavier concentration of cotton-based products in their line had already been knocking on the retailers' doors. So, I think we were probably 1 of the last ones. Because if you know our line, we have a relatively smaller percentage of our products that really involve cotton. We also went back to price increases around some of the resin products because -- for instance bathtubs. It's such a high percentage of resin, and resin did go up pretty dramatically last year. And then, some smaller goods that were heavy in labor, where we got price increases because of labor costs in China, we dealt with those. So, it certainly didn't cover every product in our line. But, roughly half of our products, I think, have undergone price increases of 1 level or another.

You won't be forced to give it back, I guess, at some point. The flip side of that is, I know you have been that at this a long time, so that even in the newer categories that you've been entering, do you have any elasticity studies to determine what consumer response is going to be in some of these categories to higher prices?

In the categories that we've entered in recently, we've tried to acquire the talent that has that history of where the market goes when you face these kind of upward pressures. But, it's been kind of a wild ride the last couple of years with commodity prices. So, I'm hoping that things that leveled off. I do read the markets, and I'm hoping that it's leveled off, at least for the remainder of the year and that we can kind of see those price increases kick in and offset some of the margin erosion that we've experienced over the past 6 to 12 months.

The numbers for this year are pretty conservative. You're always fairly conservative. I was just wondering, is there anything in your public forecast for the new car seat?

Yes. But, you would just have a partial year in there, because it's shipping later than what we initially thought.

Okay. But it is in there a little bit.

Yes.

And then, everything you've said today seems to imply that you have -- you've talked about supply chain and so forth. Everything seems to me to indicate that you have pretty good visibility into your order book and are pretty conservatively confident about the remainder of this year. I'm just wondering if you might take a stab at -- it's not like what have you done for me lately -- but I'm just wondering about next year. Given all the moving parts and everything, is there any reason to think that the types of improvements if -- for example, the pricing comes through and a lot of things you've talked about today, if they happen as you think they will -- that '12 can't be as good a year as '11? That this momentum can't continue for you?

The easy answer to that is that we're a growth Company. Our has been and will continue to be growing our overall market share and penetrating many categories in a broad manner rather than going very narrow in 1 vertical area within the industry. So, the easy answer is, we absolutely plan on continuing our growth pattern. The only thing I would temper that with is that we also have been pretty hard on ourselves at doing a lot of internal work on understanding our margins, understanding the details of our business. It's not out of the question that we could actually cut some items that we don't feel like are in the right margin equation or that are, 1reason or another, making sense. The only downside, I would say, on the growth story is that we might just simply choose to walk away from some pieces -- not big pieces -- but small pieces of the business simply because it's not profitable. So, that's the only potential of any kind of slowdown. But, I don't think that's our intent. Our intent right now is to continue growing.

You call that disciplined growth.

Thank you. Mr. Macari, there's no further questions in queue. Please continue with any close remarks.

Thank you again for your interest in Summer Infant. We look up forward to updating you on our progress when report our second-quarter results in about 90 days. In the meantime, please don't hesitate to contact us if you have any questions. Joe and I both are more than willing to talk to investors about the business and the releases that we've given and the information we've given today. So, thanks again, and we'll talk soon. Thank you.

Ladies and gentleman, that does conclude today's conference. Thank you for your participation. You may now disconnect.