Summer Infant, Inc. (SUMR) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Summer Infant fourth quarter and fiscal 2011 year end 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 7.00 am 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 and www.SEC.GOV. 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 to your questions. 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 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 future financial performance, business prospects and operating strategies.

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 Company's business contained in its 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 would like to turn the call over to Mr. Jason Macari. Please go ahead, sir.

Thank you, Operator, and thank you to everyone for being with us today. As you know, from our January 26, press release, Joe Driscoll has accepted a CFO position with another company and therefore, this Friday, March 2, will be his last day with the Company. I thank Joe for his five plus years of dedicated service to Summer Infant and wish him the best in his next endeavor. We have launched a search for his replacement, and will update you as we know more.

After generating strong sales momentum in the first nine months, through promising new product introductions and an increased presence at retail, sales only increased 8% during the fourth quarter, which was below our expectations. However, we believe that the short fall was temporary and not indicative of end demand for our product portfolio. We found that many retailers in our space began decreasing inventories during the latter part of 2011, which had a marked effect on our fourth quarter top line results across all categories. We believe this phenomenon to be industry wide and temporary.

In addition, fourth quarter point of sales data was below our expectations. as we believe that consumers focused more dollars on seasonal purchases and scaled back on our primary categories. Shipments and POS, during the month of January 2012, showed solid increases year-over-year. Leading us to believe the issue of sales into the channels is primarily a matter of timing. Exacerbating the industry wide issue of decreased inventory at retail, with slower than expected consumer uptake of our new Prodigy travel system, and a delayed launch of our PEEK monitors system. These issues are being aggressively addressed.

We have already begun correcting concerns trying the styling of the Prodigy travel system, and anticipate re-launching this product in Q3 of 2012, with more appealing styling and improved stroller. We anticipate that with new styling that is more appealing to the end consumer, this award winning product will stand out in every competitive car seat market. The PEEK monitor system, which will allow parents to view their children through anywhere in the world through an encrypted internet feed, was originally intended to begin shipping during the fourth quarter of 2011. We now expect to launch, this cutting edge new product, during the second quarter of 2012. Once launched, we expect this product to have a positive impact on revenue, which has been factored into our 2012 guidance.

All in all, 2011 was a productive year with healthy revenue growth of 22.5%, despite a challenging retail environment. We begin 2012 poised once again, for further expansion. Our singular focus on the juvenile products sector, the breath and depth of product offerings, our relative size compared to our competitors, and the strength of relationships with our retail partners, offer us substantial organic growth opportunities in the years ahead. During 2012, in addition to increasing our shelf space with our existing retail partners, we are actively pursuing new distribution channels. Further, as a market leader in innovation and recognized consumer brands, we can bolster our presence at retail by expanding into new product categories through innovative thinking and creative product launches.

In 2011, our international business grew over 25%, with particular strength in Canada. We have continued to invest in developing new businessall over the world. Including Asia, Europe and South America, and expect that 2012 will be another solid growth year for international accounts. In addition to organic growth opportunities, the highly fragmented nature of our industry remains ripe for consolidation and acquisition, as we plan to stay active in this area as opportunities present themselves.

Let me quickly touch on costs, as our industry faced some significant pressures in 2011. At this point, we don't expect to see a lot of relief this year, but it does appear the cost environment in China, has stabilized in the near term. Along with the internal steps we have taken, which include consolidation of our US distribution centers into a single California-based facility, selectively raising prices where we can and reengineering existing products to reduce costs without sacrificing the quality our consumers demand, we anticipate margins to hold around Q4 levels for at least the first half of 2012. Assuming that product mix remains consistent.

After a concentrated effort by our product teams to rework the branding, messaging and marketing of our BornFree product line, we are pleased to report a successful re-launch of the brand in January of 2012. We believe that the BornFree brand will be an important part of our growth for 2012, and we will continue to invest in developing an entire seating line under this brand. We have exciting initiatives underway with all six of our product teams, and they continue to innovate within each category, in order to differentiate our products from the competition. Retailers continue to demand innovation and unique products from suppliers, and we believe we are well positioned to deliver these products and experience shelf space gains in 2012 and beyond.

2012 promises to be another productive year for Summer Infant, as we continue to build upon our leadership position in the industry. As in any growth business, there are bound to be some bumps in the road, as we saw in the fourth quarter. We believe that by focusing on great products and the needs of consumers, we will continue to gain shelf space and importance with our customers. We begin the new year poised to leverage our R&D capabilities, strong retail network and brand equity to expand our business and gain additional market share.

Based on our current visibility, we are cautiously optimistic we can achieve our annual target of double digit percentage sales growth, and 15% to 20% diluted EPS growth in 2012. We are focused on successfully managing this business over the long-term, and therefore, to take emphasis off our short-term performance, we don't plan to update our outlook during the year unless there is a material change from these initial projections. I will now turn the call over to Joe, who will review our fourth quarter financial performance and then I will be ready to take questions.

Thanks, Jason. As we outlined in today's release, there were certain items in the fourth quarter and full year of both 2010 and 2011, that affect the comparability between the different periods. The following discussion does not include the impact of these items. For a full reconciliation of our non-GAAP results back to GAAP, please see the table that accompanied our earnings release. Which is available on the Investor Relations section of our website www.summerinfant.com.

Net revenues in the fourth quarter of 2011 increased 8.4% year-over-year to $55.4 million, driven by a more diversified product offering and increased retail shelf space with new and existing customers. This was partially offset by lower than expected consumer demand, including our new Prodigy car seat and travel system, combined with reduced inventory levels at our retail customers and delays in shipment of our new products, including our PEEK monitor system.

Gross profit, as adjusted, increased 8.2% to $19.5 million, or 35.2% of net revenues from $18 million, or 35.2% of net revenues in the prior year period. The gross profit percentage showed a slight increase from the third quarter of 2011 on a sequential basis. Selling, general and administrative expenses, as adjusted, were $14.8 million in the fourth quarter, compared to $13.6 million in the prior year. The increase in SG&A year-over-year, is primarily attributable to additional head count and other investments that had been made during 2011 to support the growth of the business.

Due to lower than expected sales in the fourth quarter, we are not able to leverage expenses to the degree we had during the first three quarters of the year, but we are highly focused on continuing to drive cost leverage in the future. We agreed to a proposed settlement of a purported class action lawsuit in January 2012, that had initially been filed in October 2009. The plaintiffs in the case alleged, that certain video monitor products did not disclose that the signals could be viewed outside the consumers' home in some instances .

We believe that the claims are without merit, but due to the uncertainty associated with the ultimate resolution of the case, in addition to the legal costs that would be incurred in a protracted legal case, we decided to enter into a proposed settlement which calls for a total payment of $1.7 million. Of which, $1.2 million is our responsibility, with the balance being covered by existing insurance policies. We recorded a total charge of $1.5 million in the fourth quarter, which represents the $1.2 million settlement amount plus legal and other costs associated with the case.

Adjusted EBITDA increased 6.6% to $4.7 million in the fourth quarter of 2011, from $4.4 million in the prior year period. We reported adjusted net income of $1.5 million or $0.08 per diluted share, compared to adjusted net income of $1.7 million or $0.10 per diluted share in the prior year. In terms of our full year results, net revenues for fiscal 2011 were $238.2 million, a 22.5% increase compared to net revenues of $194.5 million in fiscal 2010.

The strong growth, year-over-year, was driven by an expanded product offering at existing customers and penetration into a larger number of stores within existing customers' networks, combined with approximately $10 million in BornFree revenues, which was acquired on March 24, 2011. Gross profit, as adjusted, for the full year, increased 15.1% to $82.2 million, from $71.4 million a year ago. 2011 gross margins were 34.5%, a 220 basis point decline from 36.7% in 2010. Gross margins were down, due primarily to product cost increases, which started to impact us in Q4 2010 and a product mix shift, partially offset by price increases and savings from product reengineering.

2011 SG&A expenses, as adjusted, were $61.2 million or 25.7% of sales, compared to $53 million or 27.3% of sales in 2010. The 160 basis point improvement in SG&A as a percent of sales, was primarily driven by the leveraging of fixed costs on higher revenue, which will be a continued focus of the company going forward. Adjusted EBITDA was $20.9 million in 2011, a 14% increase from $18.3 million in 2010. Full year net income, as adjusted, was $8 million or $0.45 per share, compared to $7.7 million or $0.47 per share in 2010.

Looking at the balance sheet, as of December 31, 2011, net debt totaled $62 million. Our net debt to EBITDA ratio is approximately three times based on the full year adjusted EBITDA of $20.9 million. In conclusion, despite a challenging fourth quarter, the full year showed strong growth in a difficult retail and consumer environment. This concludes our prepared remarks. I will now turn the call back over to the Operator and we can begin to take your questions.

Thank you, sir. (Operator Instructions). We will go first to Liz Pierce, with ROTH Capital Partners.

Good morning. Can you guys hear me?

Yes, we hear you fine, Liz.

Hi, Jason, and sorry to see you leave. Best of luck. I was curious, Jason, on your comments on costs, particularly with what we have seen with oil prices recently and given how important resin is to you guys. Even with what we are seeing, you still feel confident that we are not going to -- you are not going to have some impact?

Yes, there is definitely some impact, but that is being offset by other cost reductions. What we are really getting at is, the net of where our costs forecasts were, there are pluses and minuses certainly, but we think the net is pretty much level with where we have been.

Okay. Have you started to see any kind of fuel surcharges yet?

Not yet, no.

Not yet.

We have seen resin ticking up a little bit. We did buy into the future a bit with resin, so at least through mid year, we feel pretty good about that end of it. It definitely looks like it is ticking up, but again, we have other efforts underway to reduce costs.

Okay. In terms of what is happening with BornFree, I think you and I have chatted about this and I continued to see -- I am not seeing as much, if you will, product and BRU. It sounds like, though you have formally re-launched this in January, and when should we start to see a little bit more, I guess gaining more shelf space?

Sure, well, we definitely, as I mentioned on the last release, that we definitely were late in shipping some of it. Some of the two factories that we are using, both were constrained on capacity and we weren't able to get everything out that we wanted to in fourth quarter, which kind of delayed getting some of the product on the shelf. We are aggressively trying to improve that right now. We maintained our shelf space and actually gained a little bit at most retailers, but we also have additional product launches hitting mid year and through third quarter, and even beginning of next year. For this year's impacts, we have some new products that are hitting more like in the second or third quarter, in that line.

The new product launch included re-launching all of the existing products and new packaging, with new messaging improvements to the products and to the graphics, et cetera. But it also included a bunch of new items that would be in addition to what we had formerly. The other big one that we did, was we did a line of Disney Baby by BornFree, which you will see on the Babies "R" Us shelf, and that product is checking out very nicely also.

I saw it in the catalog, the Disney product, but I hadn't seen it at the store. Maybe it was just the one store that I was at.

I have been to different stores and I have seen both store shelves set perfectly, and then I have seen store shelves that were a little bit spotty. I think it is partly their timing with each store, and partly us not having been able to ship everything we wanted to when they needed.

Jason, given the fact this is a higher margin category, when does the BornFree really start to move the needle in terms of total kind of Company margins?

Well, my hope is that we start gaining over the course of this year, but I think 2013 is really where we will see some nice gains, because we have -- Remember, we bought the company essentially April 1, of last year, so we really had nine months to turn around what was a line that was really not progressing, it wasn't doing well. We invested a lot of time and energy just understanding the product line, what the benefits were to the consumer, to the end user and really getting our arms around the competitive landscape and relaunching it with the correct message and positioning. We redid all of the packaging and we really got our stories straight. I think the product on the shelf, you will see, is much more cohesive and tells a story of why moms should buy into the program, not just buy a bottle.

Secondly, we started developing -- we did introduce some new product in January and February, but we have some new items coming in to the pipe and shipping to the retailers. I believe it is July. Those are going to gain some momentum, I believe they are -- I think awesome products. Then we have, in addition to that, more products hitting the shelf probably December/January of 2012 and 2013, which again, is all product that is under development currently.

Okay.

So really -- I kind of look at the BornFree acquisition as -- in 2011 it really was slightly dilutive. In 2012 it should be slight accretive, but really we invested it because of the long-term potential of the brand, and of the product line and positioning within the feeding category. I think that we are going to achieve that. I am very excited, actually, about the brand and about what it can mean to us as a Company.

That's very helpful. Are they going to earn the earn out?

It's tough for me to comment on that right now. It certainly didn't measure up to what they had told us it would do.

Right.

But it would be tough for me to comment completely on that.

Got it. Understand. Okay. Best of luck, Joe. We'll miss you, and I will get back in the queue. Thanks.

Thanks, Liz.

We will go next to Sean McGowan, with Needham & Company.

Good morning, guys. How are you?

Good morning.

A couple of questions. Could you just make sure that we are all properly calibrated on what the starting base point is for your comments on gross margin in the first half being comparable to the fourth quarter?Joe, is that after adjustments or is that as reported?

In the fourth quarter of 2011, we achieved 35.2% of gross profit and there is actually no adjustments in that number. So in my mind, that is kind of our starting point. That is our current reality and so assuming that mix stays comparable, the costs -- there is some pluses and minuses, but we should be hovering around that kind of a percentage for the first half of this year. I guess that is our current outlook.

Similar question then for the EPS, is that are you going off of the $0.47 or --

The $0.45 of --

I meant $0.45.

We're calling it adjusted EPS.

Okay. That's helpful. Either Joe or Jason, can you give us some general commentary about where you see retail inventories now? It does seem like in some cases, and I won't name names, cuts were made deeper than were warranted by the sell-through. Are we in a position now, where there is a bit of a vacuum that needs to be filled and is that happening?

Yes, that is an interesting question. We -- inventories were definitely cut more than we anticipated. When they turn the spigot off, so to speak, turning it on sometimes it presents its own set of challenges. Right now we are chasing inventories, in stock levels. In most cases, we are allowed to work up to that, but I have to say that it is not -- they are not -- all the retailers aren't allowing us to keep the in stocks at the levels that they would like us to keep them at. If that makes sense. In other words, they all -- every major retailer sets an in-stock level that they're trying to achieve, but you have to receive the orders to get those in-stock levels at the level that they want to achieve. It is kind of a tug of war and they are all trying to hit this number.

In some cases, we have had the product and we have been able to ship, and in other cases where we are kind of chasing it. As such as going with BornFree bottles, for instance, we are not able to get what we want into the pipeline. It is still very cautious, the best way I can explain it is, that the retailers have been very cautious with us, and unfortunately, every year we find ourselves in this situation. They ask for more product during Chinese New Year, so it is very difficult to respond quickly. What we have -- what we planned is kind of what is in the pipeline.

I think that is the whole challenge of what we call, chase and cancel meetings, that we have in the first quarter typically with major retailers. Especially on resets, right? Chasing the stuff that is selling well and that you, for whatever reason, haven't been able to fill the pipe and then you're canceling orders of things that maybe may not be checking out as well as you thought. Unfortunately, it all kind of takes place when the factories are shut down, during Chinese New Year. I think we are pretty well prepared for it. There are some instances where I wish we had more product, and some instances where we have more than we need. It is -- they clearly are being cautious with inventory, I guess that is the answer to your question.

More specifically, on the PEEK monitor system. I heard you talk in the past about the cycles of stocking in this business, and how to how you kind of get product in the beginning of the year and pulls itself through, and occasionally, will do some resets. Here you got a product that you are starting to ship in the second quarter. Did they hold place for you, was there enough innovation in the product that they are kind of waiting around or did you kind of miss the cycle?

I think the innovation that is represented in both products, is something that our key retailers are willing to wait for. Although we are all frustrated, certainly I'll tell you I'm frustrated with it, technically, these are both items that are new ground for us. Both innovative patentable ground-breaking types of products. There has been more challenges than we would have liked. but I think we have it by the tail at this point. They are certainly eager to get the products on the shelf. I think it is a two-way street. We are both anxious to get these products selling and get the realized potential of them.

Okay. Thanks. I'll just add, Joe, it has been a pleasure working with you, good luck and hope to stay in touch.

Thanks, Sean.

Moving on, we have a question from Lee Giordano, with Imperial Capital.

Thanks. Good morning, everybody.

Good morning.

In terms of your outlook, I think in January, you had said that you were looking to exceed your long-term targeted EPS growth rate in 2012, and then today, I think in the press release, you said you are looking to achieve 15% to 20%. I am wondering if you are incrementally more cautious on your outlook from when you were in January?

I think we are just being cautious in general. We -- I guess you could say that where we stand right now, we are just trying to be cautious period. More or less, I'm not sure, you know?It is -- I don't think it is any more or less. I think it is still cautious.

So there has been nothing that has changed incrementally since then, in terms of the business itself?

No. No. I think the year is off to a healthy start. It is to forecast or slightly above, so we are not changing our perspective on the year. I think we are just reiterating, kind of, where we stand.

Okay, great. Just on the car seat, have you done any consumer testing on the new fashion that is going into it, that is giving you the confidence that it is going to be more successful this time around?

Yes, absolutely. Truthfully, we probably didn't do as much as we should have the first time around. Yes, we have had probably 10 to 15 fashions in front of consumers, that are kind of from conservative to more -- a little bit more risky, as far as fashion goes. We've settled in on what we believe, are really fashions with wide appeal, but that have very strong points of view. We are feeling much more confident. When you look at the product, you just know that the old product, honestly, I wish we all felt good about it when it hit the shelves, but we didn't. We knew it was not our best work, but this new product that we are coming out with, I think, is very, very sharp and looks great. Just looks great.

Lastly, are you planning any incremental marketing for the re-launch of that and spending any incremental dollars on that?

Yes, I mean we have budgeted for 2012, significantly more spending in the market and communications area than we have in past years. Joe can comment on the actual percentage increase, but we -- certainly budgeted a lot more dollars in that area of the Company. We are getting behind a number of our core product lines, including monitors, SwaddleMe, we are getting behind Prodigy. BornFree is a big push, and there are several others that we have been behind and that we he have continued to support, both in print ads, online, PR, et cetera.

Okay. Great. Thank you.

Thanks.

We will hear next from Mark Argento, with Craig-Hallum Capital.

Good morning.

Good morning.

In terms of the guidance on the EPS, on the 15% to 20%, I am assuming we are taking that guidance and using it compared to your proforma numbers for the full year, the $0.45. You got us at, a little bit of some one times throughout the year in terms of various writedowns and what have you, so in terms of net income, I think you guys did roughly $3.8 million net income this year, last year, $6.6 million in net. Should we assume that 15% to 20% growth off the normalized number?

The starting point would be the $0.45 of EPS, which excludes some of those charges.

Great. That's helpful. Looking at market share, I don't know if you have had the chance to look at any NPD data, but how are you faring relative to your competition? I know retail cut back pretty aggressively at the end of the year, but on a relative basis, how do you feel about your position right now?

MPD doesn't capture two of our major customers, so it is very difficult. Although, my understanding is, Walmart has signed back up for that. It is always difficult to gauge it. There is really, in our industry, I really don't think there is any outside agency that is measuring point of sale that gives us a good sense. Generally speaking, I would say I feel great about our sell-throughs, which is really what we focus on versus competition is, year-over-year numbers and sell sell-throughs at shelf. Same items and same categories.

We will measure the item level and then the category level if we have. We are moving product lines or changing and introducing new items so that we have seen a relative health of them, versus the relative health of the previous year. We are constantly tracking that, andI feel very good about that. To talk about competitors, and certainly there is some categories that there is increased competition and others that we are faring better, if you will. Generally speaking, I feel very good. I don't feel like that it is any worse of an environment or competitors are gaining on us per se, generally speaking, but there are definitely challenges. It is a very competitive marketplace.

I know you have been feeling the gross margin pressure here, for the better part of a year. Any loosening up in terms of pricing? Is there any opportunity to sake some pricing or does the category just remain too competitive at this point?

I have talked to a few other competitors about that, as well as, people outside of the industry in consumer products, companies including the toy industry, and generally speaking folks are raising prices where they can. But not across the board. We continue to look for opportunities where we have products that could command a higher price, and we do test that from time to time with retailers or with consumers. If we have a product that is currently at a price point and we want to raise it 5% or 10% or more, for that matter, we will test it with a limited number of stores or direct to consumer, not selling but focus group type of work. There are definitely areas that we continue to see our ability to move pricing up, so we have been doing that. We did it over the course of last year.

It didn't -- over the last three years, I would say, it has not kept pace with the cost increases and our numbers reflect that. I believe right now, I'm feeling like, based on what we know and Liz brought up the rising gas prices which certainly affect us, but I think we have enough activity going on the downside we're reducing prices to offset the cost increases that might occur because of fuel. Of course, it is from our where we are looking today. It could always change, but from a cost pressure standpoint, I think we are okay.

Last question on the SG&A expense, I know it seems like you guys have done a decent job at holding that on Q4 or holding in expense, at least in Q4. Looking forward into 2012, do you anticipate any significant changes to that kind of run rate, $15 million to $16 million a quarter, in SG&A expense?

Well, the way we look at it is you have got a variable component in there that is probably going to be about 14% of sales. Whatever the sales number is, the variable piece would be somewhere around 14% of sales, and then the balance would be fixed. I guess, generally speaking, what we are trying to achieve, would be somewhere around 25% of sales for 2012. That would be our goal, so out of that 25% of sales, 14% are would be a variable component and the rest would be what we would consider more fixed. That is the piece we are trying to focus on, in terms of leveraging our cost structure, by putting more sales through our existing structure.

Great. Thanks. Good luck, Joe.

Thank you.

(Operator Instructions). We will go next to Rob Strauss, with Gilbert Securities.

Hi, guys. How are you today?

Good, Rob, thanks.

Joe, congrats and best wishes on your new endeavors.

Thanks.

Just a few follow-up questions. Jason, you had mentioned resin costs and that you had bought some to secure prices for the first half of this year. Do you consider trying to do the same for the back half of the year as opportunities warrant, or what is your philosophy regarding that?

You know, I think after about three years ago, the ability to lock in prices for a full year kind of went away, and what we have been working towards is at least six months pricing. We know that the Far East manufacturers are very keyed in on their metrics, mainly currency, labor and material input costs, which we monitor pretty closely and right now we see, although some are rising, some are subsiding, so there is a bit of a -- at least a stabilization.

With domestically and with shipping, we have obviously, the fuel component and resin component, which is all tied together. With that, we basically -- when we saw it drop towards the end of last year, we secured as much as we could without extending our ourselves too far , and that brings us through about mid-year. We continue to monitor it. I definitely -- I know where you are coming from, if gas prices continue to rise, then it could actually go up beyond where it is right this second. We typically work a little bit more watching it just -- between now and the time that we need to, which is probably in the next couple of months, we will look to our opportunity to lock in the second half.

Do you think you have enough offsets to maintain the 35% gross profit margin for the back half of the year as well?

Yes.

Okay.

I would also say, that as new products come onboard, that always helps our cause also. So we have a fair amount of new products hitting the market after the second half, or actually after the first half. In the second half we have a fair amount of new products shipping which, obviously, we are always trying to improve our margins as a result of that.

One of the factors that you spoke of beyond resin costs, is product mix. Could you remind us, and perhaps just review, the product mix difference on a seasonal basis?

Yes, I mean we have got a wide array of margins now, in our portfolio and if you go back to Q1 of 2011, our gross profit percentage was 33.7%, which is -- it is a low -- relatively low number. The reason for that, there was a large amount of furniture shipments in Q1 of 2011. As the mix kind of stabilized, as the year progressed, our margin ticked up every quarter, 34.2%, then 34.9% and then 35.2%. I think there is certainly lower margin and higher margin categories. I guess, kind of where we are right now with our mix, we should be around 35%, unless there is a significant change in mix that we don't see right now. You have got certain products like, the feeding line would be higher margin business, but that also requires kind of more marketing dollars, too. You have got different offsets in every category that we are in, but they are starting to become some what of a disparity between our -- the margins that we generate on different categories.

Jason, you had commented about new distribution channels in your prepared remarks. Can you just expand upon that, and remind us what the focus will be for 2012?

Sure. I think, generally speaking, because of our relative low penetration internationally, we would like to see our sales, our top line, grow faster internationally than we would domestically. It just kind of stands to reason that you are working off a lower base and we should be able to grow it more rapidly. We actually -- we kind of view the world in simple terms. Our largest international market being Canada, second UK. Then we he view it as Europe, and some small markets in the Middle East and Africa, and then we view it as Asia Pacific and Latin America.

Really where we see ourselves, on a percentage basis ticking up nicely, is outside of US, Canada, UK. We actually have started our own office in Australia. We continued to work on Mexico and Brazil, Japan, and. we've had nice increases, albeit off of a small base, but in Europe our efforts have been paying off. We are making progress for sure. Canada and the UK -- Canada specifically has been growing a little faster than the US and -- but I think at this point, we have gotten to the point with Canada where I see it paralleling the US growth wise. We have kind of caught up, as far as market penetration goes, but international is really where we see the potential for faster than domestic growth.

Okay, great. Thank you so much. And good luck in the quarter.

Thanks.

We will hear next from Rommel Dionisio, with Wedbush Securities.

Good morning. With regards to the distribution for the car seat re-launch, my understanding was that the initial launch had exclusivity for nine months with the key retailer and I guess that will expire by September. Will the re-launch be exclusive with the key retailer, or will it be in broad distribution?

I think the re-launch, the plans are to go beyond the initial retailer. There is a period of time that we will probably -- and the offering will continue to be exclusive, but I think the product will go through a broader distribution channel. So, in other words, the products that will be on Babies "R" Us' shelf, will be exclusive. However, there are other items in the pipeline. The car seat won't be exclusive, but the items will. There are other are items in the pipeline to complement the car seat, so other fashions, et cetera.

Okay. Just a follow-up, Jason, if I could?Will the price point be similar to what you had last year, or higher or lower than what you had?

Actually, we'll probably go higher. The car seat was launched at $179 and the travel system at $329. We believe that we didn't really give the innovation a chance by putting it in a stroller that was, kind of, outdated in fashion that we felt like wasn't really up to snuff. With the new product and the new fashion, we really went for what we believe the consumer wants versus trying to hit a price point. I actually believe that the pricing will probably step up a little bit based on nicer fabrics or better stroller design. The strollers that we are working on are all light weight aluminum, much more in keeping with today's kind of progressive strollers. They are not, old yesterday's news kind of strollers, which is truthfully where we started. We have been working pretty hard for about a year and a half, to get the right platforms together and we feel strongly about they will command a higher price than where we were.

Great. Thanks. I just want to echo my best wishes to Joe. Look forward to keeping in touch, Joe. Thanks.

Thanks, Rommel.

We will go next to Arnold Brief, with Goldsmith and Harris.

Three questions. One, you have given us some perspective on your new products. Could you also do the same with SwaddleMe and give us some idea of how that is doing? Number two, you mentioned the impact of furniture in the first quarter on gross margins. Could you give us some idea to what extent you changed the pricing in the furniture line, as you went through the year?Then thirdly, what assumptions have you made on the birth rate for the year? Even if you are assuming them flat, do you see any indication that the birth rate might be picking up, specifically do you work with Target at all and what they are doing in terms of forecasting, which might be increasing the birth rate?

Well, okay. Let me start with the SwaddleMe question. The SwaddleMe line continues to do really well. We definitely are in solid distribution model there, yet differentiated on most shelves. It has been a very great performer. I think the acceptance rate is increasing with moms, so they are actually using the product on a percentage basis more than they have in the past. I think it is generally viewed in -- by moms and by doctors as a good thing to swaddle, and it actually calms the baby and helps them sleep better. I think from a product standpoint and from a distribution standpoint, sales of this is doing very well and continues to grow.

We continue, also, to add new platforms to try to create a full breath of product line, from premature births all the way through, all types of what we call safe sleepwear, and so we continue to add platforms including, swaddling blankets and different materials in muslin, and fleece and cotton, et cetera. The line continues to expand and grow, so very happy there. With the furniture category, last year we had a number of new placements. Some of the things that we did include shipping floor models, basically for free. We had an initial pricing, we're somewhat new to the category, not totally new, but somewhat new to the category, so we had initial pricing. The things we done over the course of the year to try to control costs, or decrease costs, or improve margins, include continuing to work with the supply base to consolidate, as well as, it to try to negotiate better pricing on higher volumes.

We are getting over a year on the shelf, so your amortization of the initial sample, your floor samples get spread over more time or gets-- you already amortized it over a year, so you get a little bit of extra time on it, which helps. Generally speaking, each product that we design and put into the market, we are trying to improve the margins by a few points kind of thing. There is progress being made. Never as fast as we would like, but there is progress being made on it. I think as we become a more important part of that market, I think we will continue to improve our lot in life. We also have a couple of innovative products that are coming out that hopefully will carry with them a higher margin.

As far as birth rates go, I'm looking at a lot of the same data that you folks are looking at, but basically the JPA came out with a report that was done by an independent third party, quantitated that said that birth rates held to the low in 2011. All indications are, and they quantitatively evaluated and said that birth rates are going to be on the rise. They don't really try and nail down a percentage, but I have heard 2% to 3% kicked around, and I know Target and all retailers try to, certainly Babies "R" Us, tries to know where the birth rate is heading, and all signs seem to be positive. That is the good news.

Thank you very much. Good answers.

Thank you.

With no further questions in the queue you at this time, I will turn the conference back over to the presenters for any additional or closing remarks.

Yes, I would just like to thank everyone, our employees, customers, suppliers, shareholders and any other stakeholders, for their continued support. I know fourth quarter was disappointing to all of us. We hope that 2012, our plans are solid and we hope we continue to improve our performance. We are confident in that and look forward to discussing our Q1 results in May with you. Thanks. Thanks, everyone, for listening.

Again, that does conclude today's call. We thank you for your participation.