Inter Parfums, Inc. (IPAR) Q1 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the Inter Parfums First Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Russell Greenberg, Executive Vice President and CFO. Mr. Greenberg, you may begin.

Thank you. Good morning, and welcome to our 2014 First Quarter Conference Call. Following the financial review, I will turn the call over to Jean Madar, our Chairman and CEO, for a business overview, and then we will move on to your questions. Before proceeding further, I want to remind listeners that this conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. These factors include, but are not limited to the risks and uncertainties discussed under the headings Forward-looking Statements and Risk Factors in our Annual Report on Form 10-K and the reports we file from time to time with the Securities and Exchange Commission. We do not intend to and undertake no duty to update the information discussed. In addition, Regulation G, clarifications for the use of non-GAAP financial measures prescribes the conditions for the use of non-GAAP financial information in public disclosures. We believe that the presentation of the non-GAAP financial information included in this presentation is important supplemental measures of operating performance to investors because it provides readers with a more complete disclosure, and facilitates a more accurate comparison of current results to historic results. The information required to be disclosed for the presentation of non-GAAP financial measures is disclosed in our quarterly report on Form 10-Q, which has been filed with the Securities and Exchange Commission. The information is available on our website at www.interparfumsinc.com. Once again, when we refer to European-based operations, we are primarily talking about sales of Prestige fragrances that is conducted through our 73% owned French subsidiary, Inter Parfums SA. When we discuss our United States operations, we are primarily referring to sales of Prestige and specialty retail products, as well as travel amenities, all conducted through our wholly-owned domestic subsidiaries. I must preface this financial overview with a bit of history. In the 2012 fourth quarter, our Burberry license terminated, and Burberry paid us a $239 million early termination fee. We also entered into a transition agreement with Burberry to operate certain aspects of the business during the first quarter of 2013. The important point for the discussion of comparative first quarter sales and profitability is that during the transition period, there were negligible advertising requirements associated with the sale of Burberry products. As a result, our 2013 first quarter reported sales, gross margin, operating margin and net margin were unusually high. Therefore, in our discussion of first quarter results, when I speak about ongoing brand sales, I am excluding Burberry brand sales from the 2013 period. However, when I discuss quarterly margins, selling, general and administrative expenses and net income figures, keep in mind that last year's first quarter was atypical. So moving onto first quarter results. Net sales of ongoing brands increased 17% to $121.7 million from $104.1 million. At comparable foreign currency exchange rates, net sales of ongoing brands increased 16%. European-based operations generated sales of ongoing brands of $102.3 million, up 20% from $85.4 million. Sales by U.S.-based operations were $19.4 million, up 4% from $18.7 million. Gross margin was 56.9% of net sales compared to 63%. SG&A expense, as a percentage of net sales, was 42.6% compared to 31.6%. Operating margin was 14.3% of net sales compared to 31.3% of net sales in the prior year. Net income attributable to Inter Parfums Inc. was $12.2 million compared to $42.9 million, and basic and diluted earnings per share came in at $0.29 in 2014 compared to $1.03 in 2013. We have covered the subject of sales drivers in our Q1 news release. So I will move on to other P&L points. Our blended gross profit margin was 56.9% of net sales, which was in line with our expectations. The gross margin for our European-based product sales was 59.6%, and for U.S.-based product sales, gross margin was 42.5%, down from 45.9% in 2013, primarily due to a shift in product mix during the period. Selling, general and administrative expense as a percentage of sales was 42.6% in the first quarter of 2014, slightly below the more normalized levels for this reporting period due primarily to the decrease in royalty expense. SG&A at 31.6% of last year's first quarter sales was clearly an anomaly. To put this in perspective, in the first quarters of the 3 prior years, selling, general and administrative expenses as a percentage of net sales was 45.3% in 2012, 45.8% in 2011 and 46.7% in 2010. One more P&L point worth mentioning, there was a negligible foreign currency gain in this current first quarter versus $1.4 million foreign currency loss in last year's first quarter. Cash flow from operating activities was a use of $27.3 million in the first quarter of 2014. This primarily resulted from an increase in accounts receivable, which was due to sales growth, and decreases in accounts payable and accrued expenses, reflecting payment of 2013 advertising liabilities. Our financial position remains very strong. We closed the quarter with $409 million in working capital, including approximately $273 million in cash, cash equivalents and short-term investments and no long-term debt. At this time, we are maintaining our 2014 guidance call for net sales of approximately $495 million, which represents nearly 15% growth and sales of our ongoing brands. Our current expectations for net income attributable to Inter Parfums Inc. are in the range of $0.93 to $0.98 per diluted share. Guidance assumes the dollar remains at current levels. Jean, please continue.

Thank you, Russ, and good morning, everyone. Once again, thank you for your participation on today's conference call. 2014 started on a strong note for our ongoing brands. Several launches took place during the first quarter, most notably our men’s and women’s signature scents of what we expect to become one of our leading brands, Karl Lagerfeld. We also launched Extatic Pierre Balmain, a fragrance for women and Emblem for Montblanc, a fragrance for men. Coming this fall, we have our first Jimmy Choo scent for men, aptly named Jimmy Choo Man, and it is likely that our ad campaign will be aligned with the advertising for the Jimmy Choo Man fashion line, which we feature Game of Thrones star, Kit Harrington. We also have S.T. Dupont coming to the market this summer, new fragrances, one each for men and for women for this brand, also under our partnership with S.T. Dupont and Paris Saint-Germain, Europe's premier football franchise, who will be producing a sporty men's fragrance line for launch in September. For our U.S.-based operation, we recently shipped our first new products for Agent Provocateur, called Fatale and Fatale Pink. Late in the year, we will begin shipping of upscale men scent for the Alfred Dunhill brand. Trends are still fluid, and we're as looking to initially place the products in a limited number of high-end department store and Dunhill boutiques, followed by worldwide distribution in 2015. As I mentioned before, we are gearing for a great new program for Shanghai Tang. During the last quarter, I said it was an 8 product collection, but it is now up to 9; 6 for woman and 3 for men, with fragrance, packaging and promotional materials, evoking the glamor of Shanghai the '40s. Product distribution for the collection will be customized for specific geographic market, but at this time, plans call for the new Shanghai Tang collection to be in the 50 or so Shanghai Tang stores late in the year, with worldwide distribution in the following year. We are doing selective distribution on a number of Anna Sui scents. For instance, we are doing Sui Dreams in Pink exclusively in Japan. It was launched in February. We also have new products coming to the market for bebe, Brooks Brothers and GAP, plus a new metro brand for Banana Republic, called Modern, that will ship in August or September. Although this list is preliminary, I will give you a sneak peek into some of our new product plans for 2015. As we have said before, our first Oscar de la Renta woman scent comes to market next year, and it's looking like a supreme debut. We have men's scent in the works for Lanvin, for Balmain, and women's scent for Montblanc and Van Cleef & Arpels and also for Boucheron. We are slowly building our travel amenities business with additional brands, with Lanvin, on tranche, and Sofitel properties. We are now developing travel amenities program with Oscar de la Renta, which is in the Peninsula right now and Shanghai Tang in the future. To sum up, we enthusiastic about the growth prospects for our brand and the effectiveness of our business model. We have the financial flexibility to support expected growth, as well as to make judicious acquisitions, add new licenses and pursue other growth initiatives that may arise. Financial strength is but one reason why we're regularly approached by brand owners wishing to team with us. We are also an attractive partner because of our global distribution in over 100 countries. And most of all, we have a great track record of developing successful new products that enhance the brands of our fragrance partner and expand their brand's reach. So with that, I would like to open the floor for questions. So please, operator?

[Operator Instructions] Our first question today is coming from Joe Altobello from Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: First question I wanted to kind of just go back here to your sales guidance for this year, the 15% growth for your ongoing brands. Could you parse that out for us a little bit in terms of how much is from the brands you had for full year of last year and what's incremental for the brand that you didn't have for the full year of last year, the Shanghai Tang brand, Agent Provocateur, Oscar de la Renta, obviously, the Lagerfeld incremental sales this quarter and Alfred Dunhill. I'm just trying to get a sense for what the like-for-like sales growth we should expect this year versus last year.

I think it's -- this is Jean speaking. I think it's that we could try to answer your question, but I don't think it's the right way to look at our business. Sometimes, the existing brands could have 1 launch or 2 launches in the same year, sometime not. So I understand you like to look at the same-store sales side of numbers. But for us, it doesn't work like this. What is important to note is that we didn't have Lagerfeld last year. We are shipping them this year. We didn't have Montblanc. We didn't have Oscar de la Renta last year. We're shipping this year. But for instance, when you take Karl Lagerfeld, we had maybe 1 month of sales of Karl in this quarter. Or Russell do you -- so Russ, would you like to add something?

Yes, I guess, Joe, I'm just surprised. We issued guidance and we issued 3 numbers. And that's all we really want to issue. We do not breakout our sales like that for the exact reason that Jean just mentioned. So I -- respectfully, we just won't answer that question. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: No, I understand. I'm just looking at it from a numbers perspective. If you did $120 million -- $121 million in sales this quarter versus $104 million last year, and $13 million of the increase was from Lagerfeld, which was a brand you didn't have last year. I'm just trying to get a sense for what the underlying growth rate of your business is. And I guess, maybe a better way to answer that is have you seen any deceleration in your underlying growth rate?

Yes, like we have disclosed in our press release, that we have a nice increase in Lanvin -- in Montblanc, I'm sorry. But we have a larger decline in Jimmy Choo during the quarter. I think the decline in Jimmy Choo for the quarter was around 25%, and the reason is that when we compare with a year before, Jimmy Choo was up by 60% in the comparable quarter. So we want to give you maximum information on each of our brands. What I think is important is that we are comfortable with the guidance of -- for this year of $495 million. We do not, for instance, in the U.S., we have -- in the first quarter, we have probably decelerate by 4%, but our plan for the year is to grow the business by around 14%. We do not see any particular brand that is under pressure in terms of sales growth. Things are going quite on plan. Russ, you want to add something?

Yes, just -- I agree with everything that Jean just indicated, and one quarter is not necessarily representative of what the brand is going to do for the year. Like Jimmy Choo is a perfect example. Coming off of a comparison of 50% growth last year to decline 25% in the first quarter, our plans are certainly not for this brand to decline as this year goes on. So when you're looking at something on an isolated quarter, you're going to have those kinds of fluctuations. I think that's the best we can do to try to answer your question, Joe. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: No, absolutely, Russ. And I certainly understand the impact that timing has on your business. So I was trying to get a sense for the underlying business, and it sounds like it's still pretty healthy. So that was helpful. And I guess kind of secondly, on margins, if you go back to when the Burberry license was terminated, you guys have mentioned that you did you expect, prior to the transition agreement for 2013, operating margins would still be around 10% or so even with the loss of that brand. Obviously, you did better than last year because you did have the transition agreement in the first quarter. But if we look at your guidance this year, it looks like you're still looking for that similar 10% operating margin or at least implying a 10% operating margin for '14, where you guys did add a fair number of brands. So you should get some scale advantages from that. And I would imagine that you did rationalize some of the fixed cost that related to Burberry as well, so I'm just curious why we're not seeing sort of a bit of a margin lift this year?

Joe, we are in the first year of a post-Burberry scenario. And as we indicated, even when we issued the initial guidance for 2014, we said that we would have an operating margin of somewhere around 10% to 11%. We have almost a 50% decline in sales. There are no Burberry sales in this particular year, and it's going to take us a while until we can rebuild to get ourselves back up to historic levels. So clearly, there's going to be a decline in the operating margin in the early parts, certainly for 2014. Perhaps, it will grow a little bit into 2015. The goal, as I mentioned, is that we definitely want to get it back to a 14% or 15% operating margin. We think we can. We cannot put a timetable on it because it depends on what new brands. Jean, you wanted to add something?

Yes. This is an important question for us because the whole idea after losing 50% of our -- almost 50% of our sales with Burberry. The whole idea is to regain in 2 years, 3 years, 4 years the sales that we have lost. In order to do that, we have decided towards at the end of last year to invest heavily in 2014 with advertising in order to establish momentum for new brands, keep momentum for more established brands, like Lanvin. So it's important to mention today that we are committing to a stronger marketing and advertising program. In order to maintain and increase the sales to the level that it was. After that, we are -- we do not say we did -- we do not see any today any weakness in the sales of our brands in the different territories. Russ, you want to add?

No, I think that pretty much covers it. The idea here is, clearly, we definitely want to get those operating margins back up, but it's just going to take us some time to do it.

Our next question today is coming from Neely Tamminga from Piper Jaffray.

This is, I guess, for both Ross and Jean. If you could help us kind of again rethink around now that you've had more time under your belt for both Karl as well as Oscar, could you give a sense of how you're thinking about each one of these brands in terms of their ultimate sort of size, maybe relative to your existing brands in your portfolio? And then it doesn't matter if it's like a Jimmy Choo where it's just like 2 titles versus Montblanc and Lanvin, where it's multiple titles to kind of get down that path? It would be great to hear that. And then I have a follow-up question around the distribution of Karl. Are you full door distribution? I don't know if I heard that specifically at this point on Karl in the March distribution or are other more global doors to go on this initial launch?

I would answer maybe the second part of the question regarding the Karl. Karl's in full distribution now. We have shipped all the -- almost the same day, or the same week, shall I say, in most of the countries, men and women's fragrance. It's a little bit early to talk about sell-through, but we are on plan -- for now, we are on plan for our offering. Russ, you want to add something?

Yes. I'll try to touch base on the first part of Neely's question. With respect to most of the brands that are in our portfolio, when we look at brands like Jimmy Choo, Montblanc, and I'll even include Karl Lagerfeld into that scenario, we never know exactly how big or how large a particular fragrance will actually become when we first -- we have ideas for it, and certainly, we have seen significant success in brands like Montblanc, which in the first full year, did $40 million, which grew to almost $60 million in year 2 and almost $80 million in year 3. Jimmy Choo followed a very similar trajectory, slightly lower than the growth rates of Montblanc. And our initial expectations for a brand like Karl Lagerfeld is that it can potentially reach those levels as well. Whether or not it can become a $50 million or $100 million brand, time is going to tell a little bit. Once we start seeing the sell-through data on the initial launch results, we'll have a little bit more of an idea. And then we will continue to formulate our plan for additional new product launches. I think the second part of that question was also regarding launch schedules or additional families of fragrance within our brands. And as we do with pretty much all of our brands, every year to 2 years, we come up with a new family of fragrances to try to reach a new demographic or a new customer who is looking to enter the world of that particular brand. And that is clearly what the plan is for Karl Lagerfeld, as well as Oscar de la Renta, as well as Dunhill, and we'll continue to do that with all of the brands in our portfolio.

Russ. And just for clarity, I just want to make sure this is crystal clear. Your full doors of distribution on Karl sat fully within Q1 or did some of that go over into Q2?

No, the initial launch was done exclusively at certain distributions, at certain stores and in certain countries, which occurred in March of 2013 (sic) [ 2014 ].

So it started in Q1.

All right. But continued global distribution is going to happen and is expanding as we move into Q2.

Absolutely, we did -- we started to ship in the first quarter. So it has been in store until around beginning of March. We have continued to ship -- we continue to ship in second quarter to open the second tier. As of -- we will say that by the end of the second quarter, we should be in full distribution. We have decided to go -- because of the global reach of Karl Lagerfeld, we have decided to go a little bit faster than usual. And in going to certain markets, we have given some exclusivity. For instance, in the French market we have given the exclusivity to Galeries Lafayette because we wanted to keep the brand exclusive. But in Germany, we are in the full distribution, more than 500 doors. So we are -- as we said before, Karl Lagerfeld is an important franchise for us. We think it has the potential to become a pillar, and we will know very soon, I would think, yes, 2 to 3 months. We will know based on sell-through if we are right or not.

And then if I may on Oscar. Again, I know this more of 2015-type question. But just trying to think about that mapping here. When you guys kind of reintroduce yourselves with Oscar, I know you're working, I believe, on a new title or family altogether, and I think did you acquire -- I think there were 2 existing ones to begin with. Are you reworking those 2 similar to what you did, I think, with, was it First, when you brought on that family of brands or are you just kind of letting them be the business that they are in the channels that they are, and then just adding in like an element of prestige with that third title?

I'm impressed by the quality of the question. Thank you. We have for Oscar, we have decided to leave the existing fragrances the way they are in their distribution and really concentrate and put our energy and spending money for the new fragrance that will happen in spring of 2015. So we will -- I will say that in 2014, we will maintain the business at the level it was given to us, and we'll be looking at growth and new distribution more in 2015. That's true for Van Cleef, for First, we didn't use the same strategy. We reworked immediately existing fragrances. For Oscar, we decided not to do the same way.

Linda Weiser from B. Riley & Co.

I think it's -- maybe it was in your French press release that all regions of the world were really strong, up 20%-plus, except for Eastern Europe because of weakness in Russia. How much was Russia down and how big is it for you in percentage of sales terms? And just can you give a little color on what's going on there?

Yes, yes, we need to speak about that. Thank you for this question. Russ, you want to start? I will follow.

Yes. As the release indicated, and I think we even reiterated some of it in our quarterly report. All areas were up almost double-digit, so almost 15%, almost 20% in some of the areas. The 2 areas that declined was Asia, which was primarily in China and Eastern Europe, which was primarily Russia. The sales in Russia were actually down about 13%. I am not sure if that's something that was just specific with respect to this first quarter. But because our overall looking at the area, it doesn't appear to be any significant problem in that territory. It's just -- could be just the product mix situation that occurred during the quarter. China, on the other hand, it was not negative. It just -- its growth was limited compared to historic levels that we've seen in China. And again, keep in mind, we're coming off of a much bigger base because we do quite a bit of business in that territory, right. I believe, if my memory serves me correct, that Asia was actually up around 6% or so overall, not specifically China itself. Jean?

Yes, I would like to say that we are -- when we reviewed our numbers, we have decreased a lot our projections for Russia, and we do not think that the situation is going to get better. It was not good in the first quarter. It's not -- we are not expecting an improvement. But again, all these are included in our guidance. And we'd like also to say that for Far East, Southeast Asia is still strong, but we are seeing a slowdown in the growth in China in general, maybe also the first quarter of last year was strong for us in Asia. So the combination was difficult. So I'm expecting also certain slowness in China for 2014. But I repeat, our guidance takes this into account.

And what percentage would you say Russia is, 3% of your sales or less than that?

All of Eastern Europe is around 7.5%.

And Russia is a big piece of that, so Russia is around 5%.

Okay, great. And can you just comment on the SG&A expense. If you exclude advertising and promo and royalties, it looked like it went up in absolute dollars sequentially, like from the fourth quarter, it went up a couple of million dollars to like $30 million from $28 million. So I'm just wondering, given that your sales are still down and you're rebuilding, why would that have inched up like that? Is a temporary or are you -- or is that the go-forward level would be $30 million per quarter-ish?

Most of the other stuff outside of the royalties, servicing fees and advertising are the fixed expenses is associated with our business, including salaries and things of that sort. As we move into the first quarter, there are some adjustments that are made in some of those fixed expenses. And I would expect that it would remain at that level throughout the year. I don't see any reason, especially if they're fixed expenses, for them to go down to the extent that some of it is variable, and yes, some of it is, but most of those are the remaining fixed expenses and a couple of million dollars increase from one year to the next in a budget the size of that of Inter Parfums, I don't think is astronomical.

Okay. And then would you say that the Karl Lagerfeld shipment level that we saw in the quarter, which you said was $13 million, was that kind of as expected or higher? And also the little bit that you have of the POS results, is that moderately better-than-expected, a lot better or just in line with your expectation so far on Lagerfeld?

The $13 million is a little bit higher than we initially anticipated as far as the initial sell-in during that initial launch period.

Okay. Any color on POS so far or is it too early?

It's a little early. You're going to be a little heavier on POS on the initial launch. But then as we move into the holiday season, you're going to be even higher on the POS, but it's a little early to go into details on that question.

Okay. And then on the Jimmy Choo, when you said you kind of expected to grow this year, is that partly because of the launch of Jimmy Choo Man, and is that going to be in the third quarter shipments?

If I may, on Jimmy Choo, today, we have 2 lines. We have the Jimmy Choo original and we have Flash. What is interesting to say is in the first quarter and even in the first quarter or the second quarter, we see the original line growing. So it's always a good sign. I think it has find its target and we are able to convert more customers. We see some weakness into Flash, the second line. And I will say that the men's line is going to bring us -- the men's line is definitely not cannibalizing anything because we're going to reach another customer. So we expect the Jimmy Choo business to be strong. It was a challenge to decide to launch a men's line, a men's fragrance line for Jimmy Choo. But the trade when we presented the first prototypes really liked it, and they asked us to advance the launch. So we'll have some good expectation, and I think this will round up well the Jimmy Choo franchise.

And the Man will ship in the third quarter?

We're going to ship at the end of the third quarter.

Okay. And then finally, can I just ask you about -- obviously, there's been a lot in the press and in the business news about Elizabeth Arden possibly being up for sale. It's kind of a big business for you guys to take a bite off of that, but do you have any thoughts on their product line, and if any of those brands were to be shed, like do you just have any thoughts on the whole Elizabeth Arden situation?

I don't think it's appropriate for us to talk much about it. Suffice it to say that we are aware of what's happening in Elizabeth Arden. We are aware that they've hired Goldman Sachs to look at alternative strategies. But other than saying that, there's really not much I really -- that we would really like to add to this part of the conversation.

[Operator Instructions] Our next question today is coming from David Cohen from Midwood Capital.

So you usually give some detail in the MD&A and the 10-Q. But in advance of that being released, can you give more specifically the royalty expense, the advertising and promotion expense?

Yes. The 10-Q has in fact been filed, but royalties came in at $7.8 million or 6.4% of net sales. That's compared to $18 million last year, which was 8.4% of net sales. And promotion advertising came in at $14.5 million, which is 11.5% of net sales in 2014, and that compares to $14.7 million or only 6.9% of net sales for the 3 months ended March 31, 2013.

And how good of a benchmark, as a percent of sales, are those 2 numbers for the last 3 quarters of the year?

From a royalty standpoint, that 6.4% of net sales, I think it's a very reasonable number. That's probably where we should be. It could vary a little bit because we do have some lines that we sell that don't require royalties, but a 6.4% rate is pretty much in line with expectations. As far as the promotion expense, only 12% -- a little less than 12% of net sales in this first quarter. It may be difficult for a first quarter, but certainly not for the rest of the year. And as we've indicated in the past, historically, promotion and advertising expense was 18%, 19%. More recently, it was north of 20% on a full year basis. So at 11%, it's clearly very low and more typical of a first quarter, where you don't have -- you're not doing as much advertising.

And do you expect your -- as far as the cadence across the last 3 quarters of the year, what's the -- in terms of your advertising promotion timetable, we're going to start seeing that in Q2 or will it wait until Q3 before we start seeing that step up?

You'll start seeing a step up in Q3, and then it usually is at its highest level in Q4.

Our next question today is coming from Rommel Dionisio from Wedbush Securities.

I wonder if you guys could just chat a little more on China, specifically. I know that expanding your distribution there has certainly been a goal of yours. I wonder if you could maybe update us, and perhaps, quantify the number of doors that you're in versus last year. And also just in terms of some of the market, if you could clarify your comments, earlier, Jean, I think you mentioned the market was relatively flat for you in Q1. Was that just the timing of product launches or maybe just a little bit of market softness there as well?

One of the catalysts in Eastern Europe that affected us in the first quarter is Anna Sui sales were actually down 17% overall. I understand. That's all of Asia. Yes, we are definitely dealing with the Asian market. You want to talk specifically about China?

No, about the Asian market [indiscernible]. Yes, we have 3 -- I would say there's 2 brands that are very strong in the Southeastern and China. One is Lanvin, within the top 10, in terms of the number of doors. In China, we have, I would say, close to 600 counters for Lanvin in department stores, plus, the new [indiscernible] point of the sale for Lanvin in the guidance. But counter department stores, 600. The second brand that has a lot of traction in Asia is Anna Sui. And we saw definitely in the first 3 months of the year strong net, in sell-in, in sell-through. We have a team there and we are monitoring very carefully what's going on. What is interesting to note is that our travel retail sales in the region are all performing, are doing very well. So we see some weakness in the local Chinese market, counterbalanced by certain strength in the activities in the duty-free market. And another piece of information is of the -- as I said, the other countries besides China, in Southeast Asia are on track. So our plan is to increase advertising spending in third and fourth quarter in China to maintain the market share. So we have reallocated out of our budget, more dollars for market for advertising in China. So the total budget is not changed, but we will switch from one territory to another.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.

One last point, just to let everybody know that I will be presenting at the B. Riley Investor Conference in Santa Monica on May 20. I will also be at the Citi Global Consumer Conference in New York on May 28. And then on June 10, I will be speaking at the Piper Jaffray Consumer Conference also in New York. I hope to see some of you during one more of those events. And again, thank you for your participation this morning on this conference call, whether you are on the line live or listening via a webcast. And as always, if there are additional questions, I am available by phone. Thank you and have a great day.

Thank you, that does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.