Iconix Brand Group, Inc.
Q2 2008 Earnings Call Transcript

Published: 5 Aug 2008

[Warren Clamen:]

Good morning everyone and welcome to the Iconix Brand Group second quarter 2008 earnings conference call. Reviewing our results for the second quarter ended June 30, 2008 revenue increased 32% to approximately $51.7 million as compared to $39.1 million in the prior year quarter. EBITDA increased by 13% to approximately $35.2 million as compared to approximately $31.2 million in the prior year quarter and free cash flow to $26.3 million as compared to $25.8 million in the prior year quarter. Net income increased 11% to approximately $16.5 million as compared to approximately $14.8 million in the prior year quarter and diluted GAAP earnings per share increased to $0.27 as compared to $0.24 in the prior year quarter. Free cash flow per diluted share for the current quarter was $0.43. Free cash flow per diluted share will continue to be higher than GAAP diluted earnings per share as it excludes non-cash taxes, depreciation and amortization and stock-based non-cash compensation which are all reoccurring items. For the six months ended June 30, 2008 revenue increased 54% to approximately $107.4 million as compared to approximately $69.9 million in the prior year six month period. EBITDA for the six month period increased 36% to approximately $73.9 million as compared to approximately $54.6 million in the prior year and free cash flow increased to approximately $58.9 million as compared to approximately $47.4 million in the prior year. Net income for the six months increased 26% to approximately $34.7 million as compared to approximately $27.5 million in the prior year and GAAP diluted earnings per share increased to $0.57 versus $0.45 in the prior year. Pretax flow for diluted earnings per share for the six month was $0.96. EBITDA pretax flow and tax flow per diluted share are all non-GAAP metrics and reconciliation tables for each can be found in the press release sent earlier this morning or on our website IconixBrand.com. Our EBITDA margins were approximately 68% for the quarter. For the full year we expect EBITDA margins in the low 70s. As a reminder, non-cash compensation is negatively impacting our margins year-over-year and was approximately $0.025 for the second quarter 2008 and $0.045 for the first six month ended June 30, 2008, as compared to only a $0.005 and $0.01 respectively for the prior year’s comparable periods. The company continues to benefit from low interest rate on the term loan facility which is now at a rate of 5.08% and the company’s weighted average interest rate on all debt for Q2 was approximately 4.46%. At the end of the quarter the company had approximately $67 million in cash plus the potential availability of approximately $33 million in additional funds through its term loan facility. The total debt at the end of the quarter was $677 million and our pro forma net debt to EBITDA was approximately four times. We are comfortable with these levels given our highly visible and contractually guaranteed cash flows and aggregate minimum guarantees from our existing licenses, which totaled approximately $535 million as of the beginning of this year and excludes any renewals. I will now turn the call over to David Conn, Executive Vice President of Iconix.

[David Conn:]

In looking at the performance of our brands in the quarter we are pleased with the overall results. We continue to benefit from the diversification of our brands and our unique business model which has contractually guaranteed revenue and no inventory or markdown risk. Beginning with our direct-to-retail brands, retail sales of Mossimo at Target and Candie’s at Kohl’s both improved from being down in the first quarter compared to the year before, to being flat in the second quarter. This spring, Candie’s shop-in-shops opened in all Kohl’s stores providing a unique cross shopping experience and creating greater focus on the brand that we believe will translate into additional sales. Mossimo continues to be the largest apparel brand at Target with particular strength in the women’s side of the business and it is on track to meet or exceed our revenue plan for the year. Joe Boxer sales at Kmart were up 8% in the quarter driven by strength in women’s sleepwear and intimates. Next year, Kmart is planning to expand the brand even further with a casual sportswear and footwear collection. Joe Boxer also signed a pan European license recently with our Scandinavian partner, Virgo, which will include stand alone Joe Boxer retail stores that will open across Europe, patterned after their stores in Denmark, Iceland, and Sweden. With the new direct-to-retail license agreements we signed last week we are pleased to now have three brands licensed to Wal-Mart

[Neil Cole:]

I am pleased with our results in what has been a challenging retail and economic environment and I am confident that we will continue to execute our plan for the remainder of the year. We are reaffirming our 2008 guidance of revenue in the range of $215 to $220 and GAAP earnings per share between $1.15 and $1.20. We are also reaffirming our 2008 free cash flow estimate of between $116 and $119 million free cash flow per diluted share which equates to $1.87 to $1.92. After a period of rapidly building our portfolio and completing 12 acquisitions over the last three and a half years, we’ve become more focused than ever on maximizing the organic growth of our portfolio of brands and that process is beginning to bear fruit. Today we have a handful of very compelling larger organic growth initiatives including our Wal-Mart brands, our Home brands and our international business. These initiatives provide us with good visibility for growth in 2009 and beyond regardless of whether or not we make any additional acquisitions. While much has been said about the success of our OP brand, last week we signed two exciting new direct-to-retail license agreements with Wal-Mart for Starter and for Danskin Now. Prior to acquiring these brands, they were sold at Wal-Mart but did not have very substantially large programs. Today, they are planning to become anchor brands for Wal-Mart’s active wear and athletic apparel strategy. Both brands will be relaunching in spring 2009 with greatly expanding assortments and exciting national advertising campaigns which will include a major NFL star for Starter and will tie in with January fitness month for Danskin Now. Starter and Danskin Now are both planned to more than double their sales volume for 2008. Our OP brand is also poised for compelling growth in 2009 as we expand the full collection which today is in 1,000 doors to additional doors for next spring and take key categories such as swimwear and flip flops to all Wal-Mart doors. We are also working hard on the global roll out of OP to Wal-Mart international and are very pleased with our progress in Canada where OP will be in all doors for spring 2009 and are excited about next year’s launch in Mexico. All in turn, we will focus on bringing OP to Wal-Mart in emerging markets like Brazil, China and India. I would like now to discuss our acquisition opportunities and strategies. Though we have taken acquisition revenue out of our guidance for this year, it will continue to be an important part of our growth strategy and we believe we will acquire additional Iconix brands in the future. We anticipate that seller valuations will start to reset to more closely align with current market conditions and believe opportunities will present themselves. With over $67 million of cash on hand at the end of the second quarter, and projected increases to approximately $100 million by year end, our cash balance alone could support an acquisition and we are currently looking at several. We are also in constant dialog with bankers and believe there are opportunities to tap in to the credit markets for acquisition financing beyond the $33 million we could potentially access through our term loan facility. While we believe we have the means to finance acquisitions, our posture in this environment will continue to be to wait for only the strongest acquisition opportunities. We have looked at various distressed brand recently and have passed since we do not see meaningful growth opportunities with these brands. In closing, while I am disappointed with our current stock price and the economic environment has been challenging and unpredictable, I look at our business today and I am more energized about our growth prospects than ever before. Through our Wal-Mart initiatives and Cannon launch at Sears K-Mart we already have real visibility for growth in 2009 even if the retail environment continues to be difficult. Based solely on the planned growth for our three Wal-Mart brands, we can project high single digit organic growth for this company next year before contribution from any of the other 13 brands. Longer term, we have the growth from our joint venture in China as well as numerous other domestic and international growth initiatives that we are currently working on. While we would have liked to have additional acquisitions by now, I do believe that our growing cash reserve positions us well to be active again soon and add other Iconix brand to the portfolio with attractive economics. We are only in our fourth year as a brand management and licensing company and I feel as if we are just beginning to hit our stride for maximizing the value of this strong portfolio of brands. Last week, Women’ Wear Daily published their annual top 100 brands list and Iconix had seven brands that made the list which is the highest of any fashion company ahead of such brand owners as LBMH, Phillips-Van Heusen and Jones New York which is a testament to the quality of the portfolio that we are building. In recent report in Licensing Magazine, Iconix was listed as the third largest licensing company in the world behind giants like Disney and Warner Brothers. When I see statistics like these and consider that we are still in the very early stages of our development, I become even more energized at the vast potential of the company that we are building. We know these are tough times but I can assure you in speaking for myself, the board of directors and management, we are not at all discouraged by macroeconomic factors that are outside of our control. We are building a great an enduring company and portfolio of brands and maximizing the many global opportunities in front of us. In doing this, we believe we create compelling value to our shareholders for many years to come. Thank you all for your continued support and interest and I’d like to now open up the call to questions and answers.

[Operator:]

(Operator Instructions) Our first question comes from Jeffrey Klinefelter – Piper Jaffray.

[Jeffrey Klinefelter:]

First of all can we focus a little bit on the SG&A expenses and even backing out the non-cash comp expense, SG&G growth is fairly significant year-over-year recognizing that some of the new deals that you signed the second half of last year and the first part of this year are not in there. But, can you talk about on a go forward basis how you see that aligning with organic revenue growth? For example, what else do you need to build out in terms of headcount? Do you see more build out required to manage what would appear to be a rapidly growing Wal-Mart business? Just discuss that dynamic a little bit going in to 09.

[Warren Clamen:]

Jeff, this is a year where we had a lot of time to focus on our organic brands and build the infrastructure and maybe catch up not having acquisitions in this environment. So, we added four new brands and some of them had significant overheads like Rocawear which has a significant advertising that goes with it. So, between the four new brands and the increase, we went from having 50 people to over 100 people this year and we’ve really built a lot of great processes to work with our licenses around the world. We’ve got a presence in Europe, we’ve put together a presence in Asia. But, all that said and done, we also believe that the model can support a 70% EBITDA which is something that we’ve kept our eye on and we’re being very careful with the costs. Another significant something in the numbers is my agreement which I negotiated a new five-year employment agreement and a lot of that is non-cash compensation. So I think a good way to do it is to look at the EBITDA number and we’re pretty focused on keeping it above 70%.

[Jeffrey Klinefelter:]

Could you also address the flow of second half guidance? Given how much your royalty revenue composition has changed over the last four quarters, could you give us some direction on how you see the royalty revenue and SG&A flowing through the second half so we can get a Q3 versus Q4 guidepost more or less?

[Warren Clamen:]

I think we need to look at the composition of our licensees and we saw a couple of DTRs versus last year so I definitely looking last year versus this year, this year the revenue flow will be more focused to Q4 since we have more DTR licenses. And as Neil said, the SG&A we’re going to keep EBITDA margins in the low 70s, so that’s kind of the way the revenue will flow. Last year was a little bit heavier in Q3 than in Q4. I think it’s going to be slightly the opposite this year.

[Jeffrey Klinefelter:]

Just one last question, Neil. From your view looking across all these retail channels, could you give us a sense for your beat on the retail environment right now kind of transitioning from summer into early back-to-school? General observations on what you’re hearing and seeing and the health of different channels?

[Neil Cole:]

It’s not pretty but it’s kind of the same across all channels. The consumer is very reluctant to spend and we’re planning accordingly. We don’t see it necessarily picking up substantially until maybe hopefully after the election. One of the good parts about our portfolio and diversification, having three businesses now at Wal-Mart and Wal-Mart doing so well which I think is positioned well for this environment, is going to be a big addition to us especially in the fourth quarter as all three brands really start to hit their stride. So we’re not confident. There are too many negative factors out there right now and we’re going to be very conservative in planning over the next 12 months until we start seeing the consumer come back.

[Jeffrey Klinefelter:]

Maybe more specifically, second half versus first half of this year. What’s your collective view from feedback from retailers? We’re seeing deceleration in the second half or kind of similar to first half trends?

[Neil Cole:]

I think kind of similar. I think there are a couple of outstanding, people that are doing better than others like Wal-Mart. But we’re looking at it playing similar to what’s happened in the first half and hopefully in the fourth quarter maybe after the election the consumer will feel better about change.

[Operator:]

Our next question comes from Todd Slater - Lazard Capital Markets.

[Todd Slater:]

I wanted to understand a little better the visibility you have on next year, especially in the organic side of the business? Related to your comments that you said you see high single digit organic growth just from Wal-Mart and that was before contributions from other brands. I’m just wondering if you meant that if all the other brands were flat in the aggregate, you could see high single digits driven by Wal-Mart or was the high single digits just related to the Wal-Mart specifically that revenue line?

[Neil Cole:]

For the whole portfolio. The Wal-Mart business is going to be so substantially higher and we’re talking a couple billion dollars. We’ve had the wonderful benefit of the initiative where they’re making us the core brand within both Danskin now and Starter are taking over their athletic departments where it used to be other brands. So we’re pretty excited about that and what it does for us, we see our brands Starter, Danskin, OP at least increasing well over 50%. That alone gives our total portfolio close to double-digit growth in 09.

[Todd Slater:]

So if all the rest of that’s flat, and then with the rest of that portfolio ex-Wal-Mart obviously there are some pluses and minuses perhaps you envision for next year. What do you think is the proper base line we should be using on the rest of the portfolio for 09, thinking about it conservatively?

[Neil Cole:]

I think conservatively we should say the high single digits until we see the consumer come back and we’re hoping that’ll happen. We have a lot of great retailers we do business with and wholesalers and with Target and with Kohl’s, they’re still opening up a lot of stores. So we still see big opportunities across the portfolio. We have a lot of exciting initiatives with the Candies brand and Kohl’s and even expansion with Target and Mossimo. The other area which we talked about is Cannon could be a big upside in 09. But I think as we get closer to 09 and the end of the third quarter we’ll update it, but we’re feeling pretty good that even in that tough, tough environment of our organic growth opportunities in 09.

[Todd Slater:]

I just want to ask it again because I’m not sure. You said the rest of the businesses ex-Wal-Mart, the rest of the brands, could in the aggregate see a high single-digit growth rate?

[Neil Cole:]

No, I was saying that the total portfolio which includes Wal-Mart. Hopefully it could happen what you just said but we’re not planning that way. Hopefully if the world got back to normal like it was a year or two ago, it’s possible. But we’re planning for high single-digit growth driven by our new agreements with Wal-Mart and the planned sales there.

[Todd Slater:]

I want to move over to the international realm a little bit. That component is still obviously very, very nascent and I’m curious what percent of the business would you guess international is now, what could it be, when should we expect India to come on line, any possibility that you could see some DTR deals internationally? I don’t think there are any right now that I know of.

[David Conn:]

We have a couple Todd. We have one in South America with a company called [Follabella] for Mossimo and we have another in Canada for our London Fog brand with Hudson Bay. And we also have the big opportunity with Wal-Mart International which we have had a lot of traction recently with OP with Wal-Mart in Canada and Mexico and we’re now working with them to look to expand that to other markets like the UK, Japan, Brazil, India, China. So a lot of opportunity on the DTR front with Wal-Mart International. Today, international is about 6% of our revenue base. Internally we believe in the next few years it should be at least 20% of our revenue base if not more. And we’re making progress on a lot of different fronts. Last week we announced a number of new license agreements. With the three agreements that we announced last week in Europe, we now have five partners in Europe for our portfolio. We announced an exciting Rocawear deal in Brazil which is a market we’re becoming more and more focused on. It’s a market with very attractive economics right now and we have a great partner down there for Rocawear. You mentioned India. Right now we’re in license conversations with three of the largest retailers in India, so I think the likely strategy from our vantage point today in India is going to be a DTR strategy and we’re hoping to get deals done later this year. And as you know we’re very excited about the joint venture we set up in China. So we think we’re making good progress internationally and we do think that it could be 20% of our revenue base. And this is one of our big growth opportunities over the next few years.

[Todd Slater:]

That’s very helpful. Just to follow up on your China response there. You mentioned three years or so you could see $20 million to $40 million in annual earnings to Iconix? Did you mean revenues or is that net to the income line and sort of could you give us a little bit more color on how we should expect that to flow through?

[David Conn:]

Yes, that would be net income coming out of our joint venture in China. So it’s a 50/50 JV and our 50% we estimate in three to five years time could be $20 million to $40 million of net income. And the way that works is what we will be doing is placing our brands with strong partners and taking an equity position in the business over there. And we think in three to five years time the businesses achieve critical mass and we exit either through a trade sale or an IPO. And we base valuation on historical multiples over there and we think even if half of the brands that we place are successful, we can back into a $20 million to $40 million net income number in a few years.

[Operator:]

Our next question comes from [Analyst for Robert Omis] - Merrill Lynch.

[[Analyst for Robert Omis]:]

I just wanted to get a little more color in regard to the Starter and Danskin launches. What is the rollout distribution strategy in both the apparel and non-apparel, how many doors is it in now versus how many doors in the launch, and also what additional categories are being extended and the timing of that rollout?

[Neil Cole:]

It’s an old door program at Wal-Mart and with this new arrangement that we made, we see our rack count more than doubling pretty much in the core business that it’s in today and becoming the anchor brands. There used to be a private label brand called Athletic Works and now we see Starter taking a lot more of a prominent role taking over that department. We’re working on other opportunities but we’re also going to be launching intimate apparel, more sports underwear; we’re going to be increasing the sock business, and various other different categories; watches; pretty much making Starter the key sports brand on the male side. We’re going to be launching a major ad campaign which we’ll be announcing. Some of our celebrities or athletes are going to be joining the Starter team. And then on the same side that we’re dealing with Starter in men’s we’re going to be doing with now Danskin in women’s, pretty much penetrating throughout the store. Danskin’s got a great sports bra business, sock business; footwear for both brands is going to be a major category for both Starter and Danskin. So pretty much when you go through Wal-Mart you’re going to see these two brands on all the key athletic categories throughout the store.

[Operator:]

Our next question comes from Analyst for [Bob Thurbo] - Lehman Brothers.

[Analyst for [Bob Thurbo]:]

I just had a quick question about the bankruptcies. Have any of your brands had any significant exposure to those?

[Neil Cole:]

No, we have not had any businesses in there. We have a nice footwear business for MUDD that’s in Mervyns for a couple million bucks and then the other I’d say if there’s one closing that’s hurt us over the last couple of years, it would be the Demo closing for Rocawear. That was somewhere around 3% to 5% of the business but we’ve managed to find that business elsewhere. But none of the other businesses had our brands which is maybe why they filed. I’m only kidding.

[Analyst for [Bob Thurbo]:]

On the Rocawear, can you talk a little bit about the urban category? I don’t know if you have any space on market share for Rocawear?

[Neil Cole:]

It’s I think similar to a lot of the other businesses and it’s definitely not had the growth rate but Urban is still growing probably low single digits. Luckily Rocawear’s the top of the class and I think it’s more of a consolidation where a lot of the lower brands are going away and the premier brands are picking up their market share and therefore maintaining their business. So we feel pretty good. Also, everything that Jay is doing with Rocawear and his team is really just so on target. We have such an amazing new ad campaign where Jay is featured in it and starred in it, and our business is pretty solid there. It’s also starting to cross over a little more outside of Urban with the new collection so we’re pretty excited about everything that’s happening at Rocawear. There’s a new fragrance launch which Elizabeth Arden’s going to be spending close to $10 million in launching the Rocawear fragrance which really looks amazing with that rollout that’s happening in the next 30 days. So there are a lot of good things happening there.

[Operator:]

Our next question comes from Eric Beder - Brean Murray, Carret & Co.

[Eric Beder:]

When you look at the second half, how much of that revenue is guaranteed based upon your guidance that you’ve given here?

[Neil Cole:]

I’m not so sure between first and second half, but generally for the year it was around 70%. I don’t think there’s a change in the quarters or the first for the second, but about 70% is guaranteed. With some of the new agreements it might have gone up a little bit but generally about 70%.

[Eric Beder:]

In terms of OP, could you talk a little bit about what’s happening with that? You spent a lot of time talking about Starter and the other ones. What’s going on with OP in terms of expansion, categories; how’s that been accepted at Wal-Mart?

[Neil Cole:]

OP was a big success at Wal-Mart. It was in 1,000 stores. We don’t have our final door count for next year. We’re hoping for all doors. We know we’ve taken over pretty much the majority of all the swim category at Wal-Mart is now going to be OP, which is a big business. And all the opened up footwear and the flip flops are now OP in all doors. We’re also working on some outposts in the stores, expanding categories, but we’re pretty excited what happened there. It was a wonderful reaction. Wal-Mart did an amazing job in executing the product and we’re pretty encouraged that we think Wal-Mart has the potential to be a huge business as it continues to expand.

[Eric Beder:]

What’s been the response in the Sears stores with Joe Boxer?

[Neil Cole:]

It’s been just okay because it really hasn’t been rolled out substantially. It’s a small business. It’s around a $30 million to $50 million business, but they have a new merchandising team, I think the third in the last three years just joined and Mr. [Israel] and his team were pretty excited about the new plan. So although this year wasn’t what we hoped, we’re hoping going forward based on the large success that’s happening with K-Mart with Joe Boxer and their expansion plans, we think it’ll continue to grow. As a whole we were up about 8% in the first half of the year which is good and so hopefully when Sears gets into gear it could be a lot bigger.

[Eric Beder:]

And finally, London Fog. I know you rolled it out last year at Macy’s and Hudson’s Bay. Have you increased the products and has there been additional retailers that have taken on that product or do you want to expand that beyond where it is now?

[Neil Cole:]

Yes, we now have businesses in Dillards and Nordstroms and Belk and I believe we’re starting to sell everybody based on the success we’ve had. We think London Fog has really been one of our great launches, so we’re pretty encouraged about what’s going to happen over the next couple of years with London Fog.

[Operator:]

Our next question comes from Mark Kauffman - MLK Investment Management.

[Mark Kauffman:]

I had one idea if you want to buy something inexpensive. What about Iconix stock? I also noticed 32% of your shares are short right now. It certainly could surprise a few people. And I just wondered what your thoughts are about that going forward?

[Neil Cole:]

Usually in our Board meeting, which we have before every quarter and often in between quarters, it’s usually a two-minute discussion because we are a growth company and acquisition. But we did talk about it for a long time and there were a lot of people on the Board that felt it’s a tremendous opportunity to buy back our stock. But after a lot of discussion, we just really love the cash. We think as we continue to stockpile our cash that more opportunities are going to arise over the next six months that are going to be amazing. And we’re just seeing as this environment continues to struggle that we all believe that there are going to be some incredible Iconic opportunities. And after a long discussion and a lot of analyses and charts, we decided not to enact a buy-back at this present time because we believe we still are a growth company and there will be other acquisitions that we wish we would have had the cash for when they come up. So we will have the cash.

[Operator:]

Our next question comes from [Sabina Battia - Bassell Capital].

[[Sabina Battia:]

Going back to your term loan facility, you mentioned that you have $33 million available on this. Can you just give me some details on what is the size of this facility and the maturity on the facility? And the next question also relates to financing. Correct me if I’m wrong, did you mention that you might be placing a new line of financing for acquisitions?

[Warren Clamen:]

The term facility had a $300 million cap in the documentation and effectively we’ve drawn on $267 million. So if we wanted to go ahead and ask them to syndicate the balance, which would be $33 million, that’s what would be left without touching the term facility documentation. They’ve have to syndicate it. Secondly, it’s a five-year term with prepayments at any time. It’s at [L+(4) 09

[Neil Cole:]

As far as the next question, we don’t have an acquisition facility in place but as we look at opportunities we do believe that there’s financing based on good opportunities.

[[Sabina Battia:]

What kind of financing rates are you seeing right now?

[Neil Cole:]

Not wonderfully but, you know we’ve been looking at a lot of different opportunities but we’ve seen rates where we were spoiled with where our average all in cost today is around 4.5%, we’re seeing opportunities around 10% to 11% which are not wonderful and possibly that’s why we haven’t pulled the trigger on a few deals over the last couple of months. We’ve seen a lot of what I would call a lot of mediocre or distressed brands and with the high cost of capital we just couldn’t get there and so we let other people buy that kind of stuff. We’re just looking for wonderful great opportunities and great brands which we do believe – we are engaged in a couple and we’re hoping to get there.

[[Sabina Battia:]

Now, you did mention that you continue to see opportunities for acquisitions for the rest of the year. Can you give me some color on the size of acquisitions or anything at all? Can you quantify it in any way for the rest of the year?

[Neil Cole:]

Well, we’ve looked at various different sizes and there are a lot of smaller deals under $50 million and we’ve looked at a couple of $200, $300, $500 million deals and we’re continuing to keep our eyes open and looking for great Iconix brands that are monetized that Iconix could add a lot of growth and marketing skills to it. So, we’re pretty open to various different types.

[[Sabina Battia:]

And acquisitions would be the priority for the use of cash?

[Neil Cole:]

Yes. That is kind of how we built our company and we really believe that we can continue to grow not only organically but also with great acquisitions.

[[Sabina Battia:]

Last question, as far the term loan facility is concerned and the covenants do you just have basic covenants like leverage and interest rate coverage ratios? Anything specific? Anything outside of the norm?

[Neil Cole:]

Nope. We have just one financial covenant which is debt-to-EBTIDA.

[Operator:]

Your next question comes from the line of Jim Chartier – Monness, Crespi, Hardt & Co., Inc.

[Jim Chartier:]

When does the Martha Stewart agreement end at K-Mart?

[Neil Cole:]

I’m not sure exactly. I don’t think that agreement is public. But, we’ve been told that our Cannon business will grow substantially especially in to the back half of 09.

[Jim Chartier:]

I think it ends January, 2010 is what I’ve read. So you see Cannon being more of a growth opportunity in the second half of the year in 09 and then in to 2010?

[Neil Cole:]

Yes. But, we have some pretty nice visibility on a pretty good launch in the spring where we will be in both K-Mart and Sears and we’re working on some exciting marketing ideas. But, I think the business will really get strong in the back half of 09 and as you say mostly in 010.

[Jim Chartier:]

And are you going to have a similar allocation of floor space and categories in both Sears and K-Mart for the brand?

[Neil Cole:]

We’re still working on the details so we’re not particularly sure of floor space. Traditionally, K-Mart’s home space and home business is a lot larger than the Sears business and that’s I think how Martha is placed. Actually, Martha is only in K-Mart. So, we see a bigger opportunity in the K-Mart side because of the large business that Martha had or has.

[Operator:]

At this time I am showing you have no further questions. I’d like to now turn the call back over to management.

[Neil Cole:]

Well, thank you all once again for your interest and listening to our call. As mentioned, we really believe we’re in the beginning of an exciting growth stage. The company is only four years old and we continue to show the model and I think the key to the model is the strong cash flow which continues to gain momentum in very difficult times. So, we’re pretty excited about what’s going forward over the next couple of years. Thanks for your interest.