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Edited Transcript of CSS earnings conference call or presentation 2-Aug-18 12:30pm GMT

Q1 2019 CSS Industries Inc Earnings Call

Philadelphia Aug 6, 2018 (Thomson StreetEvents) -- Edited Transcript of CSS Industries Inc earnings conference call or presentation Thursday, August 2, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher J. Munyan

CSS Industries, Inc. - CEO, President & Director

* John M Roselli

CSS Industries, Inc. - CFO & Executive VP of Finance

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Conference Call Participants

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* Charles Neuhauser

* John Butler Walthausen

Walthausen & Co., LLC - Portfolio Manager

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Presentation

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Operator [1]

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Good morning. My name is Marcella, and I will be your conference operator today. At this time, I'd like to welcome everyone to the CSS Industries' Fiscal 2019 First Quarter Conference Call. (Operator Instructions) Thank you. John Roselli, Chief Financial Officer, you may begin your conference.

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John M Roselli, CSS Industries, Inc. - CFO & Executive VP of Finance [2]

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Good morning, and thank you for joining our conference call to discuss CSS Industries' first quarter results for fiscal year 2019, and our outlook for the full year. With me today is our Chief Executive Officer and President, Chris Munyan.

During the course of this call, we will be providing certain forward-looking information. We ask you to look at yesterday's press release and read through the forward-looking cautionary statements that we've included there.

In addition, we will use certain non-GAAP measures in our discussion this morning, and we ask you to read through the sections of our press release that address the use of these items. The press release and all related tables can be found on the Investor Relations portion of our website at cssindustries.com.

Now, let me turn the call over to Chris for some opening comments.

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [3]

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Thanks, John. Good morning, everyone. Our first quarter results were challenging, as expected, but in line with the guidance we provided last quarter. Our overall sales increased 33%, reflecting the contribution from Simplicity, which was acquired in November 2017. However, organically, our sales declined almost 8% year-over-year. Our guidance had assumed the continuation of the inventory destocking trends that we'd been experiencing from a large customer in previous quarters. We believe this trend is now largely behind us, as we've seen improved orders in July and expect this to continue. We've received specific feedback from the customer indicating that they're willing to order deeper into key SKUs and positioning their overall buy to capture seasonal spikes in demand and minimize lost sales.

Our adjusted EBITDA was down $3 million from last year's first quarter, with $2 million of this drop related to variances generated at the end of last year that were burned off in first quarter. Again, this was anticipated in our guidance. We're making good progress on our strategy to grow our sales and earnings while improving our return on invested capital. We highlighted our progress [with] several initiatives tied to our strategy in the press release, but let me expand upon these.

First, we're pleased that we're able to exit the transition services agreement that we had in place with the sellers of Simplicity on time and with no major issues. We've brought this business into our enterprise environment and have been processing orders and transacting successfully for the past couple of weeks. This was a major task for our team and I'm pleased with the outcome.

Second, we mentioned in our last call that we're conducting a deep dive in our product lines and cutting SKUs in certain areas. As a result of this effort, we announced that we're exiting our back-to-school sports licensing product line and restructuring our specialty gift line. The nature of these products is that they are SKU-intensive with high working capital needs and significant inventory obsolescence risk. As a result of this restructuring, we'll see an approximate 75% reduction in the SKUs in this area. This will reduce our selling and marketing costs, as well as allow us to further rationalize our footprint going forward.

Lastly, we announced the combination of our McCall and Simplicity operations in the United Kingdom.�This combination of the two businesses will improve our go-to-market effectiveness and reduce our operating costs. We're also planning to sell our warehouse we own in Havant, England.

So in summary, our first quarter, while challenging, was expected and puts us on track to achieve our full year guidance. We continue to execute on our strategic initiatives and have been making good progress in this area.

Before I turn it over to John, let me touch on two other topics. One, we're closely monitoring the implemented and proposed tariffs for goods imported in the U.S. from China. Some of the products we import are affected, but at this stage, we cannot expect a material impact to our fiscal year. We'll continue to monitor the situation and update you as appropriate.

Secondly, we would like to provide you an update on our [ADD-CBD] petition on plastic decorative ribbons from China as filed by our Berwick Offray LLC subsidiary. On July 31, 2018, the U.S. Department of Commerce made its preliminary determination in its investigation into whether Chinese-made plastic decorative ribbons were being dumped into the U.S. market. In its preliminary determination, the Commerce Department found that Chinese products are dumped -- are dumping plastic ribbons and bows at margins between approximately 45% to 370%. Cash deposit requirements that these rates will apply to [in-scope] merchandise entering into the U.S. effective on, and after the date the decision is published in the U.S. Federal Register. We expect such publication to occur next week. These preliminary rates may be increased or decreased when the Commerce Department issues its final determination. Prior to this determination, the Commerce Department has already preliminary found that Chinese ribbon producers are subsidized at rates between approximately 12% and 94%. We are pleased with the Commerce Department's preliminary determinations and they confirm the substantial level of dumping that's occurring in the U.S. market.

Now, let me hand it over to John.

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John M Roselli, CSS Industries, Inc. - CFO & Executive VP of Finance [4]

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Thanks, Chris. I'll start by reviewing our sales performance by category and then move through the rest of the P&L to balance sheet and cash flow.

Net sales for the quarter were $64.1 million, which was an increase of 33% over the prior year. Sales for Simplicity, which we acquired in November 2017, were $19.5 million in the quarter. Excluding Simplicity, net sales declined 8% year-over-year, primarily driven by declines in our legacy craft and gift businesses. As Chris mentioned, this was anticipated in our previous guidance.

Looking at our sales by category, seasonal net sales were $4.8 million in the quarter, an increase of 3.4% over the prior year. As a reminder, the first and fourth quarters are typically our lowest revenue quarters for this category. The small increase we saw in the quarter was primarily driven by the timing of ribbon and bow sales.

Looking ahead, we have received most of our Christmas commitments from customers. Overall, these commitments were slightly lower than we had expected, but still within the range we provided in our guidance. We'd expected that our sales would be essentially flat this year compared to last year, but we're now expecting to see a slight decline year-over-year. In addition, based on the scheduled delivery of these commitments, we will see a $4 million to $6 million shift from the second quarter into the third quarter compared to the prior year. This relates to the imported goods relative to goods made domestically, and a shift in the sales mix. Because of this shift, our Q2 seasonal sales will be down significantly year-over-year, but we'll make this up in the third quarter.

Turning to our gift category, net sales were $24 million in the quarter, which was down 4% from the prior year quarter. Lower sales of infant, social stationery and packaging and floral products was partially offset by higher all-occasion ribbon and bags. The decline in infant sales resulted from a product -- program loss at a large customer, which we mentioned on our last call, and was also assumed in our guidance.

Our packaging and floral business continues to be impacted by declining demand for ribbon products. And the growth in our all-occasion ribbon and bags was tied to share gains in a major retailer and the timing of those sales. For the full year, we expect sales in the category to be down slightly from the prior year, primarily due to the infant program loss, mostly offset by share gains in all-occasion ribbon and bags at another major retailer.

In the craft category, our net sales were $35.3 million in the quarter, an increase of 90% over the prior year. Excluding sales from Simplicity, our net sales declined 15% compared to the prior year, primarily due to the continued inventory destocking at a major retailer. As Chris mentioned, we had anticipated a difficult first quarter in this category. We also had a button reset at another customer shift from Q1 to late Q2, early Q3, further exacerbating the year-over-year decline in the first quarter.

Our home sewing business was flat organically in the quarter, which really reflects the McCall business, as we did not yet own Simplicity a year ago. Looking ahead, we continue to project sales growth of approximately 50% overall in fiscal 2019, driven by the full year contribution from Simplicity.

Moving down the P&L, our consolidated gross profit on a GAAP basis was $11.6 million in the first quarter, essentially even with the prior year quarter, but with several moving parts. First is the gross profit contribution from Simplicity, which as I mentioned, we did not own in last year's first quarter. Second is the change in step-up amortization from the McCall and Simplicity acquisitions in both periods. The McCall amortization is winding down, but the Simplicity amortization has replaced it. The net effect in the first quarter was an incremental expense of $1.9 million compared to the prior year quarter.

Third, we incurred about $400,000 of integration-related expenses tied to operational activities in our cost of goods sold in this year's first quarter. Adjusting for these items, our adjusted gross profit was $17.1 million in the first quarter this year, compared to $15 million in the prior year quarter, an increase of 14%.

Adjusted gross margin was 26.7%, which was down from 31% in the prior year. The decline in the adjusted gross margin rate was primarily due to lower volumes in the base business and the burn-off of unfavorable capitalized manufacturing variances generated in the prior quarter, as Chris mentioned. The variances impacted our gross margins by about 300 basis points and are not expected to repeat.

Selling, general and administrative expenses were $28.9 million on a GAAP basis in the quarter compared to $20.7 million in the prior year quarter. The increase was due to the addition of Simplicity operating costs and an incremental $1.4 million of integration and other expenses compared to the prior year quarter.

In the first quarter, we reported a pretax goodwill impairment charge of $1.4 million related to our recent acquisition of Fitlosophy, a small fitness journal and accessory company that we acquired in June. We purchased the business for $2.5 million plus potential earn-out payments based on the achievement of certain sales goals. The initial payment plus the estimated value of the potential earn-outs resulted in a total purchase price of $4.1 million for accounting purposes, of which $1.4 million was attributed to goodwill.

Similar to last quarter, the continued discrepancy between our shareholders' equity and our market capitalization, requires us to impair any goodwill. As long as this imbalance persists, we expect that goodwill generated from acquisitions will be impaired immediately.

The GAAP operating loss for the quarter was $18.7 million compared to $8.9 million in the prior year quarter.�Our adjusted operating loss was $10 million compared to $5.4 million in the prior year quarter, primarily reflecting the gross profit decline in the base business.

Our effective tax rate in the quarter was 1.8% on a GAAP basis compared to 18.5% in last year's first quarter. Our rate was impacted by a limitation on the benefit that can be recognized in a quarter relative to the full year expected benefit when you are projecting a full year loss. In other words, you cannot recognize a tax benefit in a quarter that is larger than the expected benefit for the full year. In addition, we had a small discrete tax item related to the cancelation of expired equity.

For the full year, we now expect an adjusted tax rate of 26% compared to previous guidance of 24%. This is primarily due to changes in the projected mix between our domestic and foreign income and the impact of the discrete item related to equity grants. We continue to evaluate the impact of the recent tax reform legislation and will adjust our rate as appropriate, as additional guidance is released in this area.

Our GAAP net loss for the quarter was $18.5 million compared to $7.1 million in the prior year quarter.�The adjusted net loss was $11.9 million compared to $4.8 million last year.�The GAAP loss per share was $2.03 compared to a loss of $0.78 last year, and the adjusted loss per share was $1.31 compared to $0.53 last year. Adjusted EBITDA was a loss of $6.7 million for the quarter compared to a loss of $3.3 million last year.

Moving now to the balance sheet and cash flow, we ended the quarter with $33.1 million of cash and cash equivalents compared to $49.7 million in the same quarter last year. The lower cash balance reflects cash used to fund the acquisition of Simplicity.�

Net inventory was $118 million at quarter-end, up $3 million from the prior year first quarter, reflecting the addition of Simplicity inventory, mostly offset by step-up amortization for McCall, as well as a $6 million reduction in the base business.

Accounts receivable were $52 million at the end of the quarter, up from $43 million a year ago, primarily due to the addition of Simplicity.�Our past-dues remain in good shape and are below last year.

At quarter-end, we had $40.4 million of total borrowings, which were used to partially fund the acquisition of Simplicity last November. Cash used for operating activities was $15.4 million for the year, essentially even with last year.

Capital expenditures were $3.2 million in quarter, compared to $900,000 in the prior year quarter, primarily reflecting capital needed for IT-related integration projects. The resulting free cash flow was a use of $18.6 million compared to $16.2 million last year.

We returned $1.8 million to shareholders through our normal quarterly dividend.

Now, let me turn it back over to Chris.

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [5]

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Thanks, John. Let's turn to our outlook for fiscal 2019. We're maintaining our guidance from last quarter for both sales and adjusted EBITDA.�We expect full year net sales to be in the range of $398 million to $412 million, which is an increase of 10% to 14% over the prior year. The growth will be driven by the full year revenue contribution from Simplicity, partially offset by the 2% to 3% decline in our base business.

Our GAAP net loss is now expected to be in the range of $5 million to $7.5 million compared to our prior range of $2 million to $4, with the change primarily due to the first quarter goodwill impairment, and the expected inventory write-down in quarter 2 relating to our gifts business.

We continue to expect adjusted EBITDA in the range of $26 million to $29 million, an increase of 7% to 19% over the prior year. The incremental EBITDA contributions from Simplicity and McCall more than offset the lower earnings in our base business resulting from the expected lower sales volumes.

In closing, we remain on track to achieve our full year sales and adjusted EBITDA guidance. We're making good progress on our strategic initiatives. We continue to evaluate acquisitions to reshape our portfolio and strengthen our position in the markets, with a focus on branded gifts and craft products. Our cash flow generation remains strong and our balance sheet is in great shape.

Operator, let's open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from the line of Linda Bolton-Weiser.

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Unidentified Analyst, [2]

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Hi, thank you. This is Cindy (inaudible) in for Linda. My first question is you mentioned that the integration of Simplicity and McCall in the U.K. will be complete by the end of the second quarter. Do you consider the integration of the two businesses complete at that point? And if not, what remains to be done? Thank you.

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [3]

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Yes, thank you. This is Chris Munyan. At that point in time, once we integrate and combine those offices, and we're also integrating systems, we would consider that integration complete relative to supply chain and how we go to market, how we distribute product.

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Unidentified Analyst, [4]

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Thank you. My second question is for Q2, is the magnitude of the seasonal shift from Q2 to Q3 roughly equal to the magnitude of the button reset benefit in Q2?

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John M Roselli, CSS Industries, Inc. - CFO & Executive VP of Finance [5]

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This is John. Cindy, this is -- I think what you're asking is the shift of seasonal sales from Q2 to Q3, is that equal to the shift from Q1 to Q2 of the button reset.

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Unidentified Analyst, [6]

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Yes.

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John M Roselli, CSS Industries, Inc. - CFO & Executive VP of Finance [7]

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Was that the question, yes? No, the seasonal shift is going to be significantly larger than the button shift.

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Unidentified Analyst, [8]

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Okay. Thank you.

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John M Roselli, CSS Industries, Inc. - CFO & Executive VP of Finance [9]

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Yes, and I think if you step back, the overall decline year-over-year in Q1 will be similar, maybe even a little bit higher, of a decline in Q2 organically before we flip to positive growth in the back half of the year because of these shifts.

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Unidentified Analyst, [10]

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Thanks. And can you give some color as to the seasonality of the Simplicity business? Which quarters are the biggest and -- or are they all roughly equal?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [11]

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Thanks for the question. This is Chris Munyan. Most of the Simplicity business is pretty equal throughout the year, but there is going to be a bit of a slight that occurs in the third quarter so -- and the reason for that is there's a couple of categories we have, Perler and American Girl Craft, which have more of a seasonal point element. So the usage in craft is going to be larger closer to the Christmas holiday. And also in patterns, there is a bit of an increase in usage of patterns in the fall, specifically for Simplicity, relating to making Halloween costumes.

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Unidentified Analyst, [12]

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Thank you. That's very helpful. And we know that a part of your strategy is to make one material acquisition every year. And as the Simplicity acquisition will anniversary in November, do you feel that the organization will be ready at that point for you to consider another acquisition?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [13]

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This is Chris Munyan. Again, thank you for the question. I do believe that we are ready. We've improved the management team; we've strengthened the team. We're now off of the TSA, which the TSA, the organization was very complicated, and that -- so we believe that we would be ready for another larger acquisition and be able to manage that effectively.

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Unidentified Analyst, [14]

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Thank you. And my last question, what percent of your revenue is currently from eCommerce? And do you have a projection as to how much that might improve by the end of the fiscal year?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [15]

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This is Chris again. I mean, our -- we don't -- I mean, it's less than 5% relates to eCommerce. And we are seeing, as we disclosed in our press release, double-digit growth in certain portions of eCommerce and in our own websites, we're also seeing double-digit growth. So our expectation is by the end of the fiscal year, we're going to be growing that, but it's still going to be likely less than 5%. And our goal over time is to try to achieve at least a 10% level of eCommerce sales, which would include websites like amazon.com.

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Unidentified Analyst, [16]

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Thank you. As a follow-up, can we assume that the major retailer is Amazon?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [17]

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The major retailer that we disclosed relating to omni-chanel?

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Unidentified Analyst, [18]

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Yes, the major online retailer.

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [19]

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That's correct.

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Operator [20]

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Your next question comes from the line of Charles Neuhauser from Mainwall Investments.

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Charles Neuhauser, [21]

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Hi, I just did a quick calculate, comment on whether you think that's an acceptable level of profitability, or if you think that with continued progress in the acquisition combination with the existing business and all that sort of thing, if -- what you might think is an acceptable or a better level of operating performance?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [22]

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Thank you for the question. This is Chris Munyan. No, we don't view that the level of EBITDA performance as a percentage of sales is acceptable. We really believe that following our strategic initiatives of acquisitions that we can synergize, growing our omni-channel focus, as well as continuing to drive down our SG&A that over time, we believe that if you go back 2, 3 years ago, that we should be able to achieve EBITDA percentage of sales over 10% similar to the past. So the 6% level is better than a year ago but, I mean, [unintelligible] percent is not better but really, it's not an acceptable level for where we're at. We're going to drive in the right direction.

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Charles Neuhauser, [23]

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Yes, fair enough. So I guess the question then becomes if the goal is to exceed 10%, what's achievable with the businesses that you have today as opposed to -- or how much of that potential improvement is dependent upon further acquisitions? Or if we just assume that we keep what we have at the moment and tweak everything to an optimal level of operating performance, is that margin goal achievable with what we have now?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [24]

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I believe with what we have now, we can exceed the percentage that we're targeting for this year. But we're -- we believe we're going to really need further acquisitions to help provide better leverage of our SG&A infrastructure.

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Charles Neuhauser, [25]

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Okay. Thanks. Could you -- again, you've thrown a lot of information at us this morning. In your opening comments, you said something about improved order progress, or improved order levels in July, June and July, I believe you said. Can you go back and explain a little more of what's involved with that and what you were talking about?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [26]

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Yes, absolutely. This is Chris Munyan again. So there's been -- over the past year or so, we've had several retail chains that have destocked their inventory. And so they've destocked their inventory because of systems that they have. Those retailers, I believe -- and we agree with that -- that because of this destocking, they've actually lost sales and they're walking sales. So we've had strong indication from these chains that their intention is to restock again, so they're not walking sales. These are specifically in the craft category and the craft category requires good assortment, and that assortment being on the shelf. And there's still a lot of shoppers who are going to shop craft in stores versus online, and these retailers understand that. So they're focused on trying to improve their stock levels back to where the proper levels are, which are higher than where they've been ordering. And we're seeing that in the last couple of months and we expect to see that over the next several months as well.

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Charles Neuhauser, [27]

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Okay. And when you say craft items, could you be a little more specific about what types of things we're talking about here?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [28]

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Well, we sell numerous craft items at this point in time, so I'm not -- so it's not going to be patterns because patterns -- our pattern business, which is a pretty substantial part of our craft business, is mostly consigned where [we own] the inventory in the stores. So that product is actually -- the in-stocks are very high. So it would be our category such as craft ribbon, craft buttons; it's going to be craft trims and tapes, product categories like that.

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Charles Neuhauser, [29]

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Oh, okay. So we're not talking about the Simplicity or McCall business? We're talking about everything else in the craft area?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [30]

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That's correct. I mean, tapes and trims would be Simplicity and tapes and trims have also seen, over the period in the last couple of years, a destocking going on in those categories as well.

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Operator [31]

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(Operator Instructions) Your next question comes from John Walthausen from Walthausen and Company.

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John Butler Walthausen, Walthausen & Co., LLC - Portfolio Manager [32]

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Yes, good morning, Chris, John. I wanted to dive a little bit deeper into the home sewing business, particularly the pattern business. I think probably a number of people -- and it's been reflected in the stock -- are skeptical given the long-term decline that it's been through. Could you -- and as I look at it now, there are a couple of key retailers that you rise or fall with. What are they saying about their plans for -- and how are they telling you, you can do a better -- those businesses can be better managed, better presented, for the consumer?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [33]

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So John, this is Chris. Thank you for the question. I mean, as we know, there's only a handful of key retailers that sell patterns. So you're going to have -- it's really the craft retailers. And one, the sale -- they know that the sales of patterns are really important to the sales of fabric and notions. So I mean, they're in business to sell fabric and notions and the patterns are the critical inspiring tool to drive fabric and notion sales. And we know factually that that is very, very important. So the other areas, as we know over the years, our patterns, [unintelligible] McCall, and to some extent, Simplicity, were complex. So our focus has been over the past several months and continuing going forward, making sure we're developing patterns for that introductory seller because we believe that sewing is on the rise.

It's on the rise because of social expressions through social media where people are posting these things that are different than posting people who like to bake or like to knit, that those things are growing in social media. And those are intro sellers. So we need to make sure that as we're putting new patterns into our catalogues and into our displays at retail, that we're focused on kind of that intro seller, so we can kind of get her more committed to sewing over time.

And separately, John, I mean, we're also focused on selling more patterns online and also the digitization of patterns, of physical patterns, is something that [tertially], we're selling now, but there is a growing trend on selling digitized patterns, which are sold as a PDF file that people then go home and pile it out with their printer. I know that sounds crazy, but that's what people are doing.

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John Butler Walthausen, Walthausen & Co., LLC - Portfolio Manager [34]

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That sounds like a tough job to do that, but okay.

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [35]

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It provides immediate ability to sew, so people at home can do that. They'll pile it out on the floor and then they will be able to start cutting their fabric immediately. And so that is a growing trend and we're committed to continue to move some of our patterns over time to be more digitized as well.

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John Butler Walthausen, Walthausen & Co., LLC - Portfolio Manager [36]

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In your expectations for this year, do you expect -- assuming that you'd own Simplicity for that period of time, do you expect pattern sales to be flat, up, down? What's the expectation?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [37]

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My expectation is pattern sales will be flat to up a little.

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John Butler Walthausen, Walthausen & Co., LLC - Portfolio Manager [38]

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Okay. That's -- and do you consider that some of your initiatives in terms of better introductory patterns and things of that nature, is what's driving it or you already --

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [39]

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No, I think it's the category as it stands today. These initiatives that we have, I mean, these are categories that have been around a long time. And these initiatives take time because patterns, John, also when they're sitting at retail, have a slower turn. So for our ability to impact what's sitting at retail is going to take more into next fiscal year, but to some -- I mean, some of the tail. But overall, pattern sales even are just generally very solid and predictable right now.

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John Butler Walthausen, Walthausen & Co., LLC - Portfolio Manager [40]

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Right. I assume that the retailers basically have a defined set of space that's given over to patterns so --

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [41]

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That's correct.

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John Butler Walthausen, Walthausen & Co., LLC - Portfolio Manager [42]

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Okay.

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [43]

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And because the patterns are consigned and owned by us, and we're able to maintain high stock levels in the stores, there's no risk or impact of destocking.

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John Butler Walthausen, Walthausen & Co., LLC - Portfolio Manager [44]

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Okay. So in terms of your road from your current inadequate margins to the better than 10% that Charlie was talking about, am I correct that craft, particularly home-sewn craft, is going to be a significant benefit towards getting there? And some of the declining seasonable businesses are more of a detriment?

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [45]

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Yes, John, I mean, I think that you're absolutely right. We believe that driving towards improved EBITDA margins are going to be driven by our commitment to craft and gift, to some extent to seasonal. But really it's going to be craft that's going to be driving that. And I think many areas of craft, whether it's selling craft or not as much paper crafting, knitting craft, which we're also involved in knitting through categories within Simplicity, they're growing all on social media, which are driving new people into that market and category.

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Operator [46]

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There are no further questions. I turn the call back over to the presenters.

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Christopher J. Munyan, CSS Industries, Inc. - CEO, President & Director [47]

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Okay. Thank you for joining us today. If you have -- if anyone has any further follow-up questions, myself or Keith Pfiel are available for the rest of the day. Please use the number at the top of the press release and give us a call. Thank you and have a good day.

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Operator [48]

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This concludes today's conference call. You may now disconnect.