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|Innovo Group F3Q07 Qtr End 8 Good day, ladies and gentlemen, and welcome to the Innovo Group fiscal year 2007 third quarter conference call. (Operator Instructions) I would now like to turn the call over to Mr. Dustin Huffine, General Counsel for the company. Please proceed, sir. Thank you and good afternoon to everyone. Present on our call today is Marc Crossman, our President and CEO; and Hamish Sandhu, our Chief Financial Officer. Before we start, let me review the company s Safe Harbor language. During the course of this call, certain statements made today may contain forward looking statements, statements of the company s or management s intentions, hopes, beliefs, expectations or predictions of the future are forward looking statements. These statements are subject to risks and uncertainties that could cause actual results to be materially different. You are cautioned not to place undue reliance on these forward looking statements, which speak only as of the dates they are made. I will also refer you to our reports that are filed with the SEC, including our 10 K and 10 Qs, on a periodic basis. These documents include information that could cause actual results to differ materially from those contained in any projections which may be made during the course of this conference call and by making the forward looking statements today, we undertake no obligation to update them for revisions or changes after today s date. With that, I will turn the call over to Marc. Thanks, Dustin and thank you everyone for joining us on the call to review our third quarter results for 2007. Before I begin, I want to say to everyone that I am extremely pleased to introduce Hamish Sandhu as our new CFO and happy to have him join us on this earnings call. I am going to say a few opening remarks about the quarter and then I will turn the call over to Hamish to provide the financial details of our results. I will then go over our product offerings and discuss 2008 initiatives before we open up for Q We are extremely pleased with the financial results we reported today. We continue to achieve the goals we have set for ourselves, both in terms of financial growth but also in terms of expanding our Joe s brand in our current distribution channels. As such, the third quarter can be characterized by a couple of highlights, namely record quarterly sales for our Joe s and our second consecutive quarter of profitability. Achieving these results were largely due to us growing our Joe s Jeans revenues by 27% and improving our gross profits by 33%, while holding our G in line with where we expect it to be. I will have more to say about our business going forward shortly, but I will now turn the call over to Hamish. Thanks, Marc and thank you all for joining us today. First, I would like to say that I am very excited to be a part of this company. I look forward to working with everyone here to maximize future opportunities to grow our business and expand the Joe s brand. Jumping into our results for the quarter, overall net sales were $15.7 million during the quarter, a 26% increase over net sales of $12.4 million in the third quarter of 2006. women s wholesale business. First, our women s department store sales continues to be a strong growth driver, with gross sales increasing 34% in the third quarter over last year. As of the end of Q3, our door count for this segment was 349 doors compared to 266 a year ago. This represents a 31% increase over that period and is primarily attributable to the all door rollout with Neiman Marcus during the third quarter, where we now are in all 38 doors, as well as a 69% increase in Saks doors over last year. In addition, the expansion of our core basic program helped drive a 71% increase over last year with Bloomingdale s and a 23% increase with Nordstrom. Secondly, our women s specialty store business, gross sales grew 45% over a year ago. We attribute this increase to our early and timely shipments of our new fall products. In short, we are now starting to see the full benefit of our improved production delivery schedule. men s wholesale business, also saw significant growth over the prior year period. Net sales were $1.5 million during the quarter, compared to $564,000 during the year ago period, a 166% increase. Our men s department store business gross sales grew 244% over last year. Department store door growth saw a 350% increase over the prior year period, as it grew Cheap Moncler from 28 doors to ending this period with 126 doors. A few key things to note about this segment: one, the continued growth of our men s business is led by Nordstrom s, as it represents 62% of our total men s department store business; two, Bloomingdale s has proven to be a great partner, as they represent 20% of our overall department store business. We just rolled out another five doors this quarter, bringing our total to 17 doors; and number three, our Saks business continues to grow, as we are opening an additional five doors in the fourth quarter to total 17 doors. Our men s specialty store business gross sales grew 188% over the same period last year as we continued to add new specialty store accounts each quarter. showrooms have each recently hired an additional sales person to focus on growing our men s specialty store business in 2008. Our third wholesale segment, international, Moncler Sales recorded sales of $949,000 during the quarter, compared to sales of $1.2 million a year ago. Gross sales in Canada grew by 38% over last year, while gross sales in Japan declined 75% and gross sales in Europe declined 60%. We ve been working hard on our recent efforts to realign this business and believe we will start to see substantial results in the second half of 2008. Turning to our gross margins, for the third quarter our gross margins came in at 42% compared to 40% a year ago. This was driven by production scheduling improvements and a shifting of a greater percentage of our production to Mexico compared to last year. SG during the third quarter was $5.3 million. The slight increase over last year is mostly attributable to higher variable costs, such as royalties and commissions. Our fixed G remained consistent with where we expected it to be. In summary, these results led to our second consecutive quarter of profitability, with operating income of approximately $1.2 million compared to an operating loss of $283,000 a year ago. Earnings per share for the quarter were $0.02. Now I will turn the call back to Marc. Thanks, Hamish. I want to talk about several initiatives that we are working on for 2008, which include: one, our recently announced resale strategy; two, the expansion of our specialty store distribution in middle America; and three, our efforts to improve our international business. Finally, I will provide a brief outlook for the fourth quarter and the full year but before I get into these initiatives, I want to talk about our product offerings, which we are really excited about as we move into 2008. First, with respect to our denim offerings, we have continued to grow our market share based on the variety of amazing fits we produce for our customers. We are utilizing the finest imported denim fabrics and are offering a unique variety of washes, with several details, such as 24 carat gold, silver, and platinum plated hardware. As a result, we are among the top three five brands with our retail partners and are dominant in the premium denim space. We are extremely excited about our new denim offerings as we are continuously introducing new products into this category. We recently showed a variety of new fabrications, including bi stretch and organic denim, as well as many new light nine and ten ounce fabrics. In addition for Spring, we are offering new silhouettes and shapes, like the super flair bell bottom and a variety of wide leg trousers with details on pockets that look new and fresh. Secondly, we ve taken an aggressive approach to expanding the Joe s collection as a part of our vision to become a true lifestyle brand. For Spring, we offer new and diversified looks to wear with our denim. You will see beautiful paperweight Cheap Moncler Vest cashmere sweaters in solids and stripes in our men s and women s collections, updated trench style and sweater jackets, blazers, a beautiful super fine snug knit for men and basic tees and Henley s, as well as a beautiful array of colors in updated shapes with satin detail for women, utilizing the finest quality knits. It is truly a stunning collection for both men and women. Thirdly, further adding to our vision, we ll be bringing the Joe s Kids line back into the fold during the fourth quarter. It s a comprehensive collection of miniature five pocket styles in washes and details mirroring our men s and women s denim lines. In addition, we will offer fashion silhouettes, novelty twill and colored denim, knit shapes in a broad array of colors and novelty tees with innovative graphics. It is currently offered in the infant, toddler, and seven through 14 girls and boys departments. You can find the line in stores such as Barney s, Neiman Marcus, Nordstrom s, Bloomingdale s, Fred Siegle, and in many of the finest specialty stores.
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