Summer Infant (SUMR) 13 Nov 192019 Q3 Earnings call transcript

Good morning and welcome to the SUMR Brands' Fiscal 2019 Third Quarter Conference Call [Operator Instructions]

I would like to now turn the conference over to your host Chris Witty. Please go ahead.

Hello and welcome to the SUMR Brands' 2019 third quarter conference call. With me on the call today is the company's CEO, Mark Messner; and CFO, Paul Francese.

to brief like harbor now would provide safe a statement. I

subject that may beyond. SUMR are events and to include statements. results call from cause relate that These various could uncertainties forward-looking statements differ and This and XXXX statements to actual risks for Brands' forward-looking these materially to outlook

XX-Q other Please refer Form contained its for with year the factors reports XX-K and XX, quarterly company's Exchange XXXX, our the to in the and on Securities the Form ended filings risk on annual in December Commission. report

in may the call share. references During financial believes understanding adjusted EBITDA, SUMR net are changes gain metrics and management measures, per Brands' make earnings operations. investors to the company meaningful help adjusted adjusted which non-GAAP income a These of

measures, evening. the the non-GAAP for non-GAAP For table reconciliation results yesterday on in measures of included more issued information please release see GAAP to financial financial company's a

I'd Mark? over like call to the And with that, turn Messner. Mark to

morning you after which Thanks, start our overview developments recent and call joining of detail. by will providing we go I’ll in conference quarter good financial Paul through today Chris third an our everyone results appreciate

million. retail down situation net million secret reported $XX.X year’s external factor for No an industry is the $XX.X the from results. We in that of the last tariff quarter, sales slightly current impacting negatively

XX% currently products SUMR a to XX% subjected For tariff. while our tariffs, are a are portion under Brands others classified of

an this causes environment imagine, can internal customers. issues, also you only unstable As operating but with our not creates

channel understood are. in disruption just work ours can, structure as state. we same boat. certain and the and inventory like elements are partners the clearly like chain the competitors affecting of anticipate our our are all situation to unprecedented of brands remainder this a but in once best further dealing with an chaotic of is This XXXX costs manage adjust are as they points Major supply and price for the We defendable

upfront not payables commentary quarterly because however, of notable and from levels. this inventory second we’re large to such provide to negative of. million generate we on a cash environment, tariffs in proud in their wanted receivables in We reductions that our from operations, with impact quarter Even results $X.X the results, tough

cash, have credit Using reducing borrowing navigate we in with of level through debt these bank group we down near-term We $X on pleased period $X million the the this nearly paid of support since its facilities, lowest as of we’re our full beginning again million our to to headwinds. flexibility the once and ended XXXX. providing availability

same year. of both sales At operational to reported industry we the terms company’s announced the time inventory X.X Such goals our conditions. XX, with and commitment our this to current improving underscore days outstanding fundamental performance achievements and adapting consistent of

by product and year’s discuss about feedback customers XXXX positive strength of productive with for areas and core We new we meetings start this numerous I’ll me Jugend' Now and very the outlook trends some what products brands. let in which for + and Cologne, Kind in praised all beyond. our a we major where during were discussed with categories marketing we saying great existing Germany turnout met and and partners channel had in received show detail. at particular had trade

year. early about We Summer’s interest All-in-all, our partners. key which car innovative confirmed strong travel on remain received introduction and infant in product and some we also for next placement channel and additional seat, establishments track retail new portfolio European with system entire reviews upbeat

exempt enhancement potential regulations. they We’re of also as excited only these not products are from but for launch the for thus the due to customer expressed far, the tariff opinions margin for

to phasing our better facility our model China, We next improve to and center logistics year. distribution streamline decided restructure this March. the in core our change profitability. said, by distribution and our That on to will international profitability growth both focus we’ve distribution shipments company’s by November bolster U.K. markets We innovative increasing overall believe This such our business offerings further will the operations. greatly new third-party out model plan end of starting

focusing and Brexit issues will from vein, are the expansion greater In impacting opportunity company, categories effort price order enhance concerted areas With we margin expanding on currency to walk to in business. the product part of with same bottom-line away certain making streamline this overall in and other integrity we a our results, those purposely

at costs, priority, Before hard even in closing that of related drive call I the to products in Margins as reduce headwinds SUMR innovative turning with sheet the over to to a China. growth. balance that continue invest variety we want trade fronts on top to strengthen to face we’re say remain Brands line working Paul, and disputes

Managing tantamount. costs is

and partners. where negotiate our We’re warehousing with analyze price in points normal, environment are operating in channel new changes production, fluid a we as very and the trends consumer shipping

but disruptive. tariffs head-on, continue problems to these attacking be acknowledge We’re will

company, that We know potential but to our and all us. strategic to will not In as open value be we it products. future report opportunities the portfolio owe our what as back are SUMR staff to to to strengthen recently engaged ways and shareholders. did can for Brands Brands yet Baird and investors we’ve light its access unlock look forthcoming, support in that at to this possible customers We has SUMR recommendations alternatives what

detail. Paul review financial With Paul? results over to to that, turn our I’ll it in

and Mark morning you, Thank everyone. good

and our night. were a related last As press issued XX-Q release reminder

addition In listening our encourage conference you to call, I to this filings. review to

the to $XX.X $XX.X were sales of third quarter net XXXX. quarter compared for million Third million

ongoing company’s tariffs a on mentioned, imported by lesser September by China XX% was certain tariff negatively goods XX% from extent additional the performance imposed to and products. impacted a line As on separate imported the top X Mark

anticipated, tariffs space, impose any X% a impacting environment and not margins. in uncertain While company XXth October for originally will is revenue challenge incremental as the our both

innovative channel our while hand-in-hand products partners many with possible this at to We price points. attractive working manage customers are difficult time, would through doing everything enticing

are overseas our going as to streamline activities the to process. Mark discussed distribution We also

in profit and sales was of as versus Gross And million $XX.X in decline margin primarily was gross on goods The third last XX.X% versus tariffs of year-over-year mix XXXX. million product our the and XXXX from due the percent impact margin $XX.X XX% was XXXX for quarter a to year. fiscal imported China.

discussions tariffs, product our hard even manage within adjustments customers lines. is the for continue our takes However, to predict. turns. levels channel and with it to inventory price with through increase going some All time actively our higher tariffs we flow The changes partners of competitive and are to forward impact difficult ongoing, to those are inventory

in third of versus $X.X quarter million $X.X the was expense XXXX year. last Selling million

was As to X.X% to a increase an marketing versus X.X% the in e-commerce in sales, changing last increase selling percent net of The selling quickly retail expense expense year. in support was environment. due XXXX

year the percent $X.X the was quarter in XX.X% million in prior year as General and a were $X.X administrative versus And of sales XXXX. third expenses in period. G&A million XX.X% this versus

million change adjustment, “R” partial debt, settlement the the cost. last allowances year legal positive recovery company $X.X a year-over-year This reflects due positive but for a a did that million Toys not a from the have year’s $X.X Us in G&A booked bankruptcy. bad to adjustment include The fact a primarily did such the decrease

reported $X.X per XXXX third million loss per share income or Interest XXXX. XXXX million million a $X.X of share of or net $X.XX fiscal compared quarter $X.XX million The net versus expense was the in company in $X.X year. of $X.X in with last

a XXXX fiscal X% Adjusted in quarter EBITDA year. for a X.X% The prior-year included versus the of was XXXX EBITDA in permitted reduction versus in credit $X.X million million third period. XXXX the for net $X.X as million XXXX. a of was add-back bank in Adjusted adjusted compared EBITDA third quarter of with percent of $X charges million sales the $X.X last

Now balance sheet. to turning the

compared $XX.X As approximately Summer debt bank of XX, $XX.X XXXX of with XXXX. of of of and bank and cash cash September million Infant $X.X of million million XX, as December million $X.X debt had

second Now $X period debt the XXXX the this of as by fiscal reduced period was versus million

spending XX, XXXX. already the new the we encouraged of approximately operations reduction $X.X on from million and September into has products of generated months Company expect ended Most for spending been capital cash our XXXX XXXX. for in capital remainder a three and

with of third to XXXX Inventory turns to ongoing million reduce management at million working and reflecting goal capital the $XX the inventory million as $XX.X XX, been inventory has December quarter of compared $XX.X around was was with end which X.X our accomplished.

fiscal was were beginning of was outstanding compared $XX.X $XX.X Trade the year. September million as receivables of compared our and million or Day under end goal the expenses sales $XX.X XX to at accrued of the with Accounts XX, XXXX of at payable at September DSL fiscal million the of $XX.X XXXX. XX. million beginning

I third as we million The cash At prior company cash credit. approximately use year ago million mentioned moment to the availability line $X.X quarter during approximately quarter $X.X compared of of of end the operations a from of under million the of our $X in the period. had generated

amendment we commitment Brands. an their provides As we them to Mark recently mentioned thank liquidity through the with tariffs. impact our of which work additional Bank completed as for Group We SUMR

I'll turn with operator the and open And up to it that, call questions. the over to

comes Eric SCC with Beder question Research. first from Our Instructions] [Operator

a talk bit international little let's that Now about here. changes

terms at in here, of when in shifts should focus terms – goal driving the higher international here. in expecting terms the look we business the terms in of of of here there? changing looking So the we what at international you be Are returns what's

an spoken focus definitely the our profits Good about improving SKUs producing the Kong on have efficiency walk international we've all and in question. better and it's off of to business instead model efficiency away distribution reacted from but Hong logistics of Eric. low performing and well distribution and customers of to overall We’ll island new out some just through

Great.

the driven on tariff pass and able here reduce what to as In increases terms I your in the of China the are you you to to has dependence ability guess the are been price U.S.? trying a on items, - manufacturer

good question. well, Yes,

and a to. We will quick move continuous one at and looking product are it a tariff regions and it’s that not that’s but products continuing to exempt we've move to regions action - tariff-exempt reshoring continue undertaken

different retailers I’d tariffs its times several back of time for been with velocities we've have from say certain those time is going change on in the increases sharing to depending of the and successful but tariffs on lists retail laborious going course increases but price products successful and we've through which in with been item four it's Retails changes. changed lumpiness marketplace. created in the through to getting there

like a but resource we dynamic to environment tariffs continue very it’s So to I mentioned. relative

those We’re redesigning to to efficiencies on and our products working increase we're get suppliers costs. changes and with design our lower efficiencies cost products just those on

process. the So active are in we tariff very mitigation

is Paul. this Eric,

in tested for our warehouse our We've really bit that us. service on now XPL Just U.K. we worked we've restructuring, our back China earlier as customers we're And Europe the opened the expanding made well more going this out to announcement international to and international a year, color service up had add little customers. actually it's that well. and in to strategy that a

that our key in servicing the warehouse will improvement annualized take our warehouse million the feel basis. China basis be We believe March I as we from gain - customers by The on completed and in say U.K. and an several and $X a we annual profitability on a servicing Europe. will on closure slow ending profitability be We the in significant and months. believe customers of will U.K. about would will that of focus that provide the

you rollouts know, Last you great. product here, up. XXXX interesting some that's what question Well, have be, coming in should

entries So what talked change mix reorgs different of about? how to shift do looking about be these between and most is the the thinking you products are that how we to your And as kind product should going at? you new you forward

of probably is starts our the product like the on car we're Yes, a travel advocate reviews with one in of excited them next high advocates seat safety new The mentioned launches fantastic, we and we I shipments earlier, work very response has work with been beginning of year. about as seat. it launch our develop infant biggest system the which and

a feel that like really space like to retailer's crowded selling of you proposition and consumers equally it will we large as have installation. use unique The but know, seem speak response and a ease is we can

an as our really continue So system innovate to as core but categories in the excited travel well. we about car and seat current opportunity

brand to certainly few, bath potty, our gates, will like a categories SwaddleMe stay name under So and active as well. and

comes Our question Small-Cap with Research. Zacks Richard from next Hantke

analysts want I there's ask there's don't to others few the products so for I'll queue a end, because I'm the new our Marla I'll then in a obviously I'll that sitting at in Marin, to want apologies more. consumer just she's advance. back ask and questions. hold get just few I'll time up, ask some in I and had we're And couple questions. If a story a the

maybe you me on Baird starting tariff is, there, strategic do they're me day anything can't tariffs don't going say day the the it, But But by give color Baird, what help options. next with know kind I a can what's the with of uncertainty, more tariffs, driven dealing because little on, Thanks. crazy. off, about be I doing, know, evaluation, to and of on, know, off. don't please? you you're and, yet say day to about, mean, they honest, you you the you've are absolutely you weakness Can tariffs, can business can they're next little you understand, a they situation it, but talk know, know, in I in the it's they're one bit do so one day much you hired and how they're but some

market I brand you and they affect might performance, through change. in and the the not retailers are increases the tariffs one Well, the know, lumpiness is, And other. mean, our buying changes I some obviously, routines how for their getting go price mean, as

choppy the field it's right So is - playing now.

terms have categories. we with opportunities in we're obviously, leadership I many In Baird. of strategic mean, investigating

and shareholder than lines brands product sale, maybe maybe have there's further those or with We line, product possibly brands strong more to through and opportunities or good the brand that. those value, unlock

what to need shareholder provide drive do our diligence So and now due to value. we want just we're

come come Now and can be out, you you you know months future the it six what will us recommend future, you to when any be down to out but sometime three it say did don't going they'll little a us? narrow as when that to to in months sense with think they're you you the for back bit

really team, that look outside our in value to bring an opportunities we financial as we have advisor Brands, brands. really Yes, prudent explore for I assets. very a When it's there may value our be management tremendous SUMR to to believe engage to us the to look at

We at have in value retail. placement tremendous our

to We that bring customers. innovative value the have products in we tremendous

for but those exploit And we looking do by not maximizing so either whether there's - goal see into our sort off the product market how a line, look really for values, is today. a valued or a those some of selling to don't merger, look transaction that through being we of values

the they're value advising shareholder to task - So, for best going maximize they the have options to of the future. us, see in what is us

in to we back time us. a of that expect for We period relatively short to happen period specific a to get have don't it time. them But

- what kind the to you a ex to margin know, but ask quantify of I maybe you would think mean, this normalized we from bit mean, a - be Now sales - in little however what I'll margins, of tariffs? Or the can Is declined. tariffs, with the different would would think over to I there impact gross color? the X.X you what but your think you a way the the million. answer year me any decline little have ago a ways, give ex- done you of period, looking respect it's also for business? know, maybe a know, I same at impact And I'll the you gross can like, guess two should seasonal I you of kind or tariffs? be chance the you sales understand little what's it'll question

detailed this is way has year the do budgeted Richard, every best year, been consistent. bottoms we we budget of sell and had The of rather up to what pretty quantifying that midst Yes. that a

change at margin, the true our we impact versus when And basis look I of in the XXX variable that So be would I gross see only the the impact how are about margins budgeted and points. tariffs. the

significant. points the XXX a is had basis significant pretty yes, So tariffs impact margins. on our have

from at doing to we've that, XXX we're some again, from in that we're And outside suppliers, we've China. I it Here our price very impact of to fronts. which them. several tariffs due are asked mitigate some they've for retail. basis points. and our We've increases believe gross concessions concessions We've moved the been on we got doing supportive about But margins gotten everything the productions can

Thank you.

few go. I've I'll and the I more be but you. you hold right. a had questions, up to time got end Okay. at the back get have before others queue. Thank want there'll to who All questions, maybe in don't some

with Instructions] [Operator question follow-up Our Small-Cap will Research. from next Hantke a Richard be Zacks

so better. things a that. asked international just I questions had Eric like on little your understand and components I a few

I XX% And is think half know, Canada that your of World. believe, based to sales of half I and Rest that mentioned think the that are grow. you expected last internationally, you quarter, you and of I in

what how at on know, you today, the International of - do based Now, your of component we're business? guess talking I about I look

like mean, be focus will on profitability. mentioned the previously, Yes, we I

that growth effort. we goal to the and model to changing profitability, I model, it, retail hampered Paul might what rapidly to the So deliver highlighted through mean, is face we're improve the we landscape again, be let's and as is expect that there. changing change to pretty and customers distribution

retailers a going is partners. other to baby a pretty we announcing shift to and growth Mothercare, So and which that's like big channel retailer to administration space mean challenge I last sales with have some week,

increase next a coming be year, by at Chinese and of in then in the of all of look believe ways, look we provides ability and a expect world, next we efficiencies that margin. international World. from servicing we're warehouse, growth we on that Rest to our the more profitability group an of Canada customers a an in of we us Canada the and the a at year, rest will sales, Canada gaining predicting the two also we profitability, customers If at focusing look the reasonable have but key decline from that increase is we

got Okay, it.

Now, you have earlier laid out one at speaking materials you of year, was, know, of in margin, profitability. the you some know, goals your presentation sustained of your to you looking want

Now define adjusted know, know, of to there to EBITDA. But you the it made be And things comment, when going you is it do that you now. you margin, on how you what - a all Is Is you you you certain gross that's, I know, know, table it? as be over profitability. at time. know, what, know, period goal? any that going do is year-on-year say still a sustain, in when you a look you kind valid of And realized,

I some higher, higher categories opportunity earlier, is and well. price margin moving well, of for much is sale Yeah, certainly as I the average dollars I mentioned mean, into that the the company's mean, and we're so increase focus then talking well for efficiency we EBITDA. on gross projects the to work profitability about the its way bottom that as increase to line just margin,

of mix impact retails getting even some you're right a We're which retail when an categories take if heavier lower in priced from the it's down things. tariffs now, some competitively So, positioning pretty into moves. price

pushing So sets our entice to will there. be focus the move to higher with on feature retails consumers

with parents. I in with system help of Part our will expectant travel launches, connection the us mean, well, first time entry

delight folks, them the those once and the So to brand long with haul. going for us we're we keep with

and product mix a strategy. just improvement the of strategy overall efficiency bit little a that's So company of

all got Yes, right. it, Excellent.

it that. I'll leave Just, you of kind final macro know, at question. one

you know, much case that the like versus, misconceptions, decline to on under stock of been much you a control little, out things know, you a terms that. is versus, is Can some may maybe on, of lot you of much be. you know, a little what rest know, you're of pressure, you of, and up better to know, stocks lack understanding us talk way bit know, whatever not how question you how on community year-to-date, know, something how your you Your the you in is know, the for and investment the deserved, of about how you is it, the, kind ask world really the of and, much a and

you Well, not in great. a it excuses. results performance likes mean, is Yes, dynamic I isn't the the nobody space, some certainly mitigate particular, baby you've and but to up okay. tariffs, quarter, challenge I you that factors tariff issues. space need the step our proud and with mean, consolidations, of this we're We're delivering just to need are to and had that dynamics retail deal and outside

that our higher there's So we I'd tariffs up say those step challenging, more of a that might tariffs. nimble business say will influences a have but and and good make mix in be just products mitigate is and meet trough profitability higher, and outside depth mix be might of challenges team and I'd overall pretty And that products product because selling tariffs. the

do work And products this period that support mix we forward continue entice our just and need a retailers and with pushing that to good of have We through brand soft company. consumers. our

out. And to grow we that to us allow it and partnerships very but have challenging point environment I is to think a have good

customer think bit very the I the - Toys “R” back as their “R” there's now. grown look adjusted our two five accounts in After adjust four Us, top needed top which right very We've last Yes, actually Us. When years, liquidation, fatigue, XXXX, of a well with was the to after company this that a replace investor us. of liquidation over little Toys we've for large I well. to

This had battling adjust to here. year, day to we're which we've of every uncertainty tariffs, the

at you years, look been when last that the think I very have two they challenging. So

to large of to customer excuses loss again, value can of not uncertainty impact our our the bring major tariffs doing against we're overcome shareholders. and products, in to Here the but we're everything try to to XXXX the time making we overcome the

you well. very reducing attentive that, are our need that we to as also And know, think sure as debt you to make know, I we

we're looking you doing know, think challenges, at I that I that think everything we those So, can.

impact mitigate replacing Toys and products. of our we think good I “R” in Us. think to everything made the the I we can we're some doing inroads tariffs And

earlier so excluding I get the Well, the you think sales story. and your BRU But I new a moment it. in BRU? now the some to know, you to you I'm chart got on history, who's that, like, Excellent, had about saw for had year BRU I there. know, it. I'm

So, all thank my you thank anyway, questions. your listen, right, all very are much Paul, Mark, Those for time.

further conclude no any our Messner this have session. questions, turn will would Mr. we question-and-answer I back to remarks. the closing to As for conference like over

Thank speaking look your you for And of with SUMR to and everybody joining call forward our next support quarter. you Brands. we

conference presentation. The has now concluded. Thank you today's for attending

may You disconnect. now