U.S. Markets close in 1 hr 59 mins

Edited Transcript of XELB earnings conference call or presentation 14-May-18 9:30pm GMT

Q1 2018 Xcel Brands Inc Earnings Call

Parsippany May 22, 2018 (Thomson StreetEvents) -- Edited Transcript of Xcel Brands Inc earnings conference call or presentation Monday, May 14, 2018 at 9:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrew M. Berger

SM Berger & Company, Inc. - MD

* James F. Haran

Xcel Brands, Inc. - CFO, Principal Financial & Accounting Officer and Assistant Secretary

* Robert W. D'Loren

Xcel Brands, Inc. - CEO & Chairman

* Seth Burroughs

Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary

================================================================================

Conference Call Participants

================================================================================

* Laurence Carroll Leeds

Buckingham Capital Management, Inc. - Chairman and Portfolio Manager

* Michael Milton Yuji Kawamoto

D.A. Davidson & Co., Research Division - Research Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Xcel Brands' Fiscal 2018 First Quarter Investor Conference Call. Please note that today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Berger. Please go ahead, sir.

--------------------------------------------------------------------------------

Andrew M. Berger, SM Berger & Company, Inc. - MD [2]

--------------------------------------------------------------------------------

Thank you, John. Good evening, everyone, and thank you for joining us. We appreciate your participation and interest.

With us on the call today are Chairman and Chief Executive Officer, Robert D'Loren; Chief Financial Officer, Jim Haran; and Executive Vice President of Business Development and Treasury, Seth Burroughs. By now, everyone should have had access to the earnings release for the first quarter ended March 31, 2018, which went out earlier today.

And in addition, the company plans to file with the SEC its quarterly report on Form 10-Q tomorrow, May 15, 2018. The release and the quarterly report will be available on the company's website at www.xcelbrands.com. This call is being webcast and a replay will be available on the company's Investor Relations website.

Before we begin, please keep in mind that this call will contain forward-looking statements. All forward-looking statements are subject to risks and uncertainties that can cause actual results to differ materially from certain expectations discussed here today. These risk factors are explained in detail in the company's SEC filings. Xcel does not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Finally, please note that on today's call, management will refer to certain non-GAAP financial measures such as non-GAAP net income, non-GAAP diluted earnings per share and adjusted EBITDA. Our management uses these non-GAAP metrics as measures of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the company's results of operations.

Our management believes these financial performance measurements are also useful because these measures adjust for certain costs and other events that management believes are representative of our core business operating results. And thus, they provide supplemental information to assist investors in evaluating the company's financial results.

These non-GAAP measures should not be considered in isolation or as an alternative to net income, earnings per share or any other measures of financial performance calculated and presented in accordance with GAAP. You may refer to the attachments to the company's earnings release or to Part 1, Item 2 of the Form 10-Q for a reconciliation of non-GAAP measures.

Now I'm pleased to introduce Robert D'Loren, Chairman and Chief Executive Officer. Bob, please go ahead.

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [3]

--------------------------------------------------------------------------------

Thank you, Stan. Good evening, everyone, and thank you for joining us. I'll start with an overview of our recent financial performance and then provide some thoughts on the rest of the year. After that, our CFO, Jim Haran, will discuss our financial results in more detail. And then we will conclude by opening the call for Q&A.

With that, I'll begin. We showed an improvement in first quarter revenues, which was a result of the commencement of our wholesale and e-commerce jewelry business and a 45% increase in revenues from our department store business compared with the prior year quarter. Our GAAP net income increased 225% from the prior year quarter, and our non-GAAP net income and adjusted EBITDA increased 26% and 11%, respectively, compared with the last year.

We are continuing our transition from a licensing company to a technology-based operating company that provides a 360-degree solution for our retail customers. We believe our operating platform, including our fast-to-market production and integrated technologies capabilities, provides us with significant competitive advantages compared with more traditional wholesale and licensing companies. We believe we are well positioned for sustainable long growth.

Now taking a closer look at our business by distribution channel. In our interactive television business, we continue to work closely with QVC to engage our existing customers, identify new customers and look for opportunities for expansion in this channel. We remain committed to driving customer engagement with exclusive offerings and collections and through the customer engagement created by our on-air talent. As we grow our audience, we are expanding our apparel collection programs into new categories while consistently adjusting our merchandise mix based on customer feedback.

With respect to our Judith Ripka jewelry brand on QVC, we are still experiencing headwinds in the jewelry category. We continue to work on several initiatives to improve performance, including improvements in sourcing, design and technology. Overall, we are satisfied with our interactive television business performance, show productivity and customer accounts on QVC for our lifestyle apparel brands' increase in the current quarter compared to the prior year's quarter, thanks to the ongoing positive response to our products and consumer engagement with our on-air talent.

We expect momentum in this channel will continue to be positive during 2018. Our goal is to ultimately leverage our fast-to-market production and integrated technology platform in this channel, and we believe that there may be additional opportunities in the future. We remain focused on actively looking for opportunities to expand sales in the interactive television channel, both domestically and internationally.

Finally, QVC recently bestowed on us an award that I am proud to mention. We were named 2017 Exceptional Vendor and Merchandising Excellence for our work with our Isaac Mizrahi brand.

Now turning to our department store business. In the first quarter of 2018, our department store business continued to grow across multiple categories. We continued to improve our fast-to-market production platform in both branded and private label products by adjusting design, planning, merchandising and visual in-store merchandising and implementing our integrated technologies, which we believe will benefit us going forward.

We are expanding into new categories, including denim for IMNYC, Isaac Mizrahi and menswear collections for Highline, H Halston and IMNYC. Also, we are excited by the potential for our brands in Lord & Taylor's highly innovative new business launching this month on Walmart's e-commerce marketplace platform. This innovative program introduces our brands to approximately 100 million new shoppers each month. We will report on our progress with the program in the quarters ahead.

We are making good progress with our C. Wonder brand. We have licensed several product categories and expect significant results from the launch of the brand in China last week. We see this as a great opportunity as it will allow us to access one of the fastest-growing markets in the world. Finally, we continue to explore additional growth and distribution opportunities with our existing retail partners and new domestic and international retailers.

As a reminder, our fast-to-market production platform remains in early stages. The work we are doing in this project is not iterative. It is true innovation at every level and true innovation does not come easy. This platform is technology-driven and built for our retail partners. It is designed to create clear advantages for these retail partners. Our goal is to create the ability to better manage inventory, create an intelligent dynamic assortment that includes short lead time for best seller reorder and for new fashion updates to increase customer engagement and traffic through frequent flows of product. We believe that this approach will ultimately improve full price selling and reduce the current challenges caused by margin compression.

Our fast-to-market production and integrated technologies platforms allow us to develop intelligent trend-right products based upon technologies that include 3D design, trend analytics, data science, consumer insight testing and will ultimately include an AI component.

Regarding our wholesale and direct-to-consumer jewelry businesses, in December of 2017, we launched a direct-to-consumer e-commerce platform for our Judith Ripka fine jewelry brand offering items in 18-karat and 14-karat gold and sterling silver.

In connection with the launch of our e-commerce business, in January 2018, we transitioned to our jewelry business from a traditional license to a wholesale bricks-and-mortar business. We believe this strategy will complement our e-commerce jewelry business and continue to grow the Judith Ripka brand as a premier luxury brand across all channels of distribution.

The current quarter sales on our website and our wholesale sales have been encouraging. We have great expectations based on the results we are currently seeing. We will continue to report on this business going forward.

Finally, in our specialty retail business, we continue to expand our product offering and gain momentum in specialty retailers nationwide. Our beauty products with Revlon are performing well. We remain committed to exploring new specialty retail opportunities, collaborations and partnerships.

In summary, we are excited by the progress made and early results achieved in expanding and diversifying our business from a licensing company to a technology-based operating company. We are reaching our goal of establishing our presence in whole channels of distribution so that we can be everywhere our customers are shopping.

We believe our commitment to relentless innovation and growth is the right approach to navigate through the current retail environment, turning its challenges into opportunities. We are confident in the long-term prospects of the company and our ability to create long-term value for our employees and shareholders.

Now I'd like to turn the call over to Jim to review our financial results for the quarter. Jim?

--------------------------------------------------------------------------------

James F. Haran, Xcel Brands, Inc. - CFO, Principal Financial & Accounting Officer and Assistant Secretary [4]

--------------------------------------------------------------------------------

Thanks, Bob, and good evening, everybody. I will briefly discuss selected financial results for the quarter ended March 31, 2018. Please note that our financial results are described more fully in our quarterly report on Form 10-Q, which will be filed with the SEC tomorrow, May 15, 2018.

In the first quarter of 2018, total revenues increased by approximately 4% to $8.8 million compared with $8.4 million in the prior year quarter. Commencing this quarter, we separately present in a condensed consolidated statement of operations, sales and cost of goods sold related to our jewelry wholesale and e-commerce operations.

Our jewelry wholesale and e-commerce business contributed $0.29 million to the overall increase in total revenues in the current quarter and $0.11 million to our net revenues. Additionally, our licensing revenue showed an increase of $0.05 million in the current quarter, which was primarily due to higher net revenues from our wholesale and department store business.

These increases in revenue were partially offset by lower net revenue from the C. Wonder brand that, as previously disclosed, has transitioned away from QVC. This will be the last quarter we have a negative comparable with 2017 for C. Wonder revenues generated from QVC.

Effective January 1, 2018, we adopted the new FASB revenue guidance Accounting Standard Codification 606 under the modified retrospective adoption method by applying the new guidance to contracts that were not completed as of January 1, 2018. The adoption did not result in material differences from the company's prior revenue recognition policies or revenue recognized in the current quarter.

On a GAAP basis, our net income was approximately $0.5 million for the quarter ended March 31, 2018, or $0.03 per diluted share. This compares to a GAAP net loss of $0.4 million or approximately negative $0.02 per diluted share in the prior year quarter.

In addition to an increase in net revenues, our operating expenses and interest expense decreased by $0.78 million and $0.09 million, respectively, compared with the prior year quarter. The decrease in operating expenses was primarily attributable to net decreases in total compensation, including stock-based compensation of approximately $0.52 million. The decrease in interest expense is attributable to lowering our term debt balance.

Non-GAAP net income for the current quarter was $1.4 million or $0.08 per diluted share based on approximately 18.7 million weighted average shares outstanding compared with non-GAAP net income of $1.1 million or $0.06 per diluted share based on approximately 19 million weighted average shares outstanding in the prior year quarter, representing an increase of 26% and 36%, respectively, from the prior year quarter. Adjusted EBITDA in the current quarter was approximately $2.2 million compared to the prior year quarter's adjusted EBITDA of $1.9 million, an increase of 11%.

As a reminder, non-GAAP net income, non-GAAP diluted EPS and adjusted EBITDA are non-GAAP unaudited terms. Our earnings press release as well as our quarterly report on Form 10-Q present a reconciliation of these items with the most directly comparable GAAP measures.

Turning now to our cash position. As of March 31, 2018, the company had total cash and cash equivalents of approximately $8.9 million compared with total cash of approximately $10.2 million at December 31, 2017. The $1.3 million net decrease in cash and cash equivalents was primarily attributable to $1.7 million in principal repayments on our term debts and $1 million for capital expenditures for our department store business, which were partially offset by $1.6 million of cash provided by operating activities.

The $1.6 million of cash provided by operating activities was primarily driven by net income of $0.5 million, which includes noncash expenses of approximately $1.4 million; an increase of $0.6 million in accounts payable, accrued expenses and other current liabilities; and partially offset by an increase in accounts receivable of $0.8 million. The increase in accounts receivable was attributable to higher revenues in the current quarter compared with 2017's fourth quarter. The noncash expenses were primarily attributable to stock-based compensation and depreciation and amortization.

Looking at our debt. As of March 31, 2018, total liabilities were approximately $36.3 million, which includes $20.2 million term debt, $3.1 million of contingent obligations and $6.8 million of net deferred tax liability. Of these amounts, $2.9 million of contingent obligations and $0.5 million of term debt are payable in stock or cash at the company's option.

At March 31, 2018, total current liabilities were $9.4 million, inclusive of approximately $5.6 million of the current portion of long-term debt. Our working capital at March 31, 2018, was approximately $9.5 million compared with $10.2 million at December 31, 2017.

Working capital for the current quarter was impacted by the previously mentioned $1 million investment in capital expenditures for our department store business. Still with approximately $8.9 million of cash and $19.7 million of term debt payable in cash, our adjusted EBITDA ratio as of March 31, 2018, on a rolling 12-month basis was approximately 1.3. We continue to be positioned with one of the lowest leverage ratios of any of our industry peers.

And with that, I would like to turn the call back over to Bob for his closing remarks. Bob?

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [5]

--------------------------------------------------------------------------------

Thank you, Jim. Ladies and gentlemen, this concludes our prepared remarks. Jim, Seth and I are now available to take your questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We will take our first question from Larry Leeds from Buckingham Capital Management.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [2]

--------------------------------------------------------------------------------

Question, your department store business was up 45%. The extent -- if you eliminate the one line that closed with QVC, was the rest of your business up with QVC, Isaac and H?

--------------------------------------------------------------------------------

James F. Haran, Xcel Brands, Inc. - CFO, Principal Financial & Accounting Officer and Assistant Secretary [3]

--------------------------------------------------------------------------------

Yes. So our Judith Ripka business and our Halston business on interactive television were flat.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [4]

--------------------------------------------------------------------------------

But how -- let me ask, how was your Isaac business and how was your H Halston business?

--------------------------------------------------------------------------------

James F. Haran, Xcel Brands, Inc. - CFO, Principal Financial & Accounting Officer and Assistant Secretary [5]

--------------------------------------------------------------------------------

Isaac was up, and Halston was flat from last year.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [6]

--------------------------------------------------------------------------------

Say that again? I didn't hear.

--------------------------------------------------------------------------------

James F. Haran, Xcel Brands, Inc. - CFO, Principal Financial & Accounting Officer and Assistant Secretary [7]

--------------------------------------------------------------------------------

Isaac Mizrahi brand was up, and our Halston business was flat from last year.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [8]

--------------------------------------------------------------------------------

Okay. And Ripka was down (inaudible) is going away?

--------------------------------------------------------------------------------

James F. Haran, Xcel Brands, Inc. - CFO, Principal Financial & Accounting Officer and Assistant Secretary [9]

--------------------------------------------------------------------------------

No, they were flat. What we were down was with C. Wonder.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [10]

--------------------------------------------------------------------------------

So now how do you project for the rest of the year your QVC business from now on through the end of the year compared to last year?

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [11]

--------------------------------------------------------------------------------

So Larry, Isaac is exceeding plan and Halston is on plan.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [12]

--------------------------------------------------------------------------------

Let me repeat my question, Bob. How do you project in total for the next 9 months, how your business for that 9 months will be against your business with the QVC same 9 months last year?

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [13]

--------------------------------------------------------------------------------

We expect to be up. We expect to be up because Isaac is doing very well for us.

--------------------------------------------------------------------------------

James F. Haran, Xcel Brands, Inc. - CFO, Principal Financial & Accounting Officer and Assistant Secretary [14]

--------------------------------------------------------------------------------

And we expect on directed television, Judith Ripka and Halston to be flat. And we would have a negative comparable with C. Wonder for the rest of the year.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [15]

--------------------------------------------------------------------------------

And you said you had a bunch of new products in there, too.

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [16]

--------------------------------------------------------------------------------

Yes, we do. We've now launched our SoHo line. We're launching Isaac Mizrahi denim on QVC and also Halston denim. So we would expect to finish the year strongly based on (inaudible).

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [17]

--------------------------------------------------------------------------------

Now if I heard correctly, which I often don't, you mentioned in your remarks that you were going to speak about the remainder of the year and make your -- you said during this call, you would discuss the rest of this year and we didn't hear you do that.

--------------------------------------------------------------------------------

Seth Burroughs, Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary [18]

--------------------------------------------------------------------------------

Larry, this is Seth. As you know, we don't currently give guidance on the remainder of the year. We do have an analyst covering the stock. I'm not sure you (inaudible).

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [19]

--------------------------------------------------------------------------------

No, I don't think you do anymore. Didn't he leave?

--------------------------------------------------------------------------------

Seth Burroughs, Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary [20]

--------------------------------------------------------------------------------

D.A. Davidson?

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [21]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Seth Burroughs, Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary [22]

--------------------------------------------------------------------------------

No, in fact, he initiated coverage today.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [23]

--------------------------------------------------------------------------------

He moved? Where is he?

--------------------------------------------------------------------------------

Seth Burroughs, Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary [24]

--------------------------------------------------------------------------------

At D.A. Davidson.

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [25]

--------------------------------------------------------------------------------

From D.A. Davidson.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [26]

--------------------------------------------------------------------------------

Okay, good. I'm glad you got somebody. But I think you -- I think just from my experience, that you're the only person I know that doesn't give some kind of guidance or reference or discussion to the rest of year. What are we supposed to do with shareholders when you do it first quarter and then you leave it blank? I mean, I've never seen a company not give some kind of at least for the next quarter and talk somewhat generally about the rest of the year. I suggest you do so because everybody does.

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [27]

--------------------------------------------------------------------------------

Well, we have said to the market various different times that we expect to be up by 25% top and bottom line, and our numbers this quarter are consistent with that so that's where we think we will be.

--------------------------------------------------------------------------------

Seth Burroughs, Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary [28]

--------------------------------------------------------------------------------

Yes. And Larry, for the future, we'll certainly take that comment into consideration. The department store business is a new business, but we'll certainly take that into consideration.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [29]

--------------------------------------------------------------------------------

Your educated guess should be a lot better than our educated guess.

--------------------------------------------------------------------------------

Seth Burroughs, Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary [30]

--------------------------------------------------------------------------------

Understood.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [31]

--------------------------------------------------------------------------------

And I point out to you, if you want to talk to your fellow from Davidson. With all the great things you're doing, you made $0.26 last year and you're projecting $0.27 this year. Now what I hear, I think I would be extremely disappointed if going from having so many relative victories that your earnings don't grow. And if your sales are going to grow 25%, your earnings should certainly grow significantly. So no one is going to buy the stock with a $0.27 -- because 10x earnings, you're a 10x earnings company for that -- or 9x for that number. If you do better and people think you're going to do better, they'll be interested in purchasing the stock. So those are my comments. Now I leave you to address why shareholders should hold the stock and why new shareholders should buy the stock.

--------------------------------------------------------------------------------

Seth Burroughs, Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary [32]

--------------------------------------------------------------------------------

I'm not sure if that's a question, Larry.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [33]

--------------------------------------------------------------------------------

And I know it's a -- well, that's a statement that -- it's a request almost for you to give some kind of explanation as to why you're going to have basically flat earnings with a 25% sales increase and a lot of good things happening.

--------------------------------------------------------------------------------

James F. Haran, Xcel Brands, Inc. - CFO, Principal Financial & Accounting Officer and Assistant Secretary [34]

--------------------------------------------------------------------------------

I don't think we ever said that.

--------------------------------------------------------------------------------

Laurence Carroll Leeds, Buckingham Capital Management, Inc. - Chairman and Portfolio Manager [35]

--------------------------------------------------------------------------------

I've said my piece and I leave it to you guys to respond at your convenience.

--------------------------------------------------------------------------------

Seth Burroughs, Xcel Brands, Inc. - EVP of Business Development & Treasury and Secretary [36]

--------------------------------------------------------------------------------

Okay. Noted.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

And our next question comes from Michael Kawamoto from D.A. Davidson.

--------------------------------------------------------------------------------

Michael Milton Yuji Kawamoto, D.A. Davidson & Co., Research Division - Research Associate [38]

--------------------------------------------------------------------------------

So first one, just can you elaborate on that Walmart platform you talked about and what that looks like? Is that going to be part of Walmart's current e-commerce site?

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [39]

--------------------------------------------------------------------------------

Yes, Walmart has created a marketplace very similar to Amazon's marketplace. And one of the first retail participants is Lord & Taylor. So starting May 15, what we will see on Walmart's e-commerce platform is the equivalent of a shop-in-shops on walmart.com offering products at Lord & Taylor. Lord & Taylor will be the retailer of record, and they will offer a variety of brands that they currently carry at Lord & Taylor on walmart.com. What we know is that Walmart currently has 100 million visitors per month come to their website, and it is hard to predict with a high level of certainty what this means. It's -- this is all new. It is changing the industry. We believe it is incredibly innovative and a sign of the times, and stay tuned.

--------------------------------------------------------------------------------

Michael Milton Yuji Kawamoto, D.A. Davidson & Co., Research Division - Research Associate [40]

--------------------------------------------------------------------------------

That sounds good. And then can we get an update just on how discussions are going around new programs on that QTR platform?

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [41]

--------------------------------------------------------------------------------

So we are in discussions with nearly every major department store to either do branded or private label programs for them. In addition to department stores, we're in discussions with many of the digitally native companies that are very interested in the technology and the speed of which we can design and produce garments. So we would expect that those will be revenue drivers for us in the future.

--------------------------------------------------------------------------------

Michael Milton Yuji Kawamoto, D.A. Davidson & Co., Research Division - Research Associate [42]

--------------------------------------------------------------------------------

Great. And then you've had to do this Ripka site up for a few months. Is there anything you're learning there? And then are you still on plan to do an apparel site by the end of the year?

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [43]

--------------------------------------------------------------------------------

I would say the Judith Ripka e-commerce business is going well for us. One of the surprises is the age of the customer base on the e-commerce platform. It is much younger than we anticipated, and we're still learning from the results of the sales on that platform. I would say we'll begin to explore additional direct-to-consumer opportunities with our apparel brands now that we have the supply chain in place. And I would expect that we would begin to really see that type of business in 2019. We'll spend this year perfecting what we're doing for Judith Ripka and then launch additional sites in '19.

--------------------------------------------------------------------------------

Michael Milton Yuji Kawamoto, D.A. Davidson & Co., Research Division - Research Associate [44]

--------------------------------------------------------------------------------

Got it. And then on the cost of goods sold, is that inventory that you're holding? Or can you help me understand that dynamics there?

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [45]

--------------------------------------------------------------------------------

No, the inventory is consigned to us by our manufacturing partners.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

And gentlemen, we have no further questions at this time.

--------------------------------------------------------------------------------

Robert W. D'Loren, Xcel Brands, Inc. - CEO & Chairman [47]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for your time tonight. We greatly appreciate your continued interest and support in Xcel Brands. As always, stay fit, eat well and be healthy.