Good Things Happening at Spy.

You may remember that until a few months ago Spy, as a public company, was releasing the usual filings and I was analyzing them.  But they stopped releasing them and, though still public, its shares are now traded on the OTC pink sheets under the symbol XSPY.

As I wrote every quarter, I always liked the brand and thought they were doing most things right.  But I couldn’t quite see how they could be successful.  It’s beginning to look like they might have figured it out.

On July 15, they let fly with a couple of press releases.  One of them announced that they had converted $22.8 million of debt into convertible preferred stock.  As I’d write every quarter, that debt was effectively equity any way.  Now, they’ve acknowledged that and cleaned up the balance sheet.  I don’t recall all the terms and conditions of that debt, but certainly it stood in the way of any deals the company might make.  So on the one hand, the change is kind of window dressing, but on the other hand, it gives the Spy some flexibility going forward.

More impressive were the summary financial results they released for the six months ended June 30 2015 and 2016.

Revenues fell 14.9% from $17.25 million last year to $14.68 million this year.  Okay, so that doesn’t sound very impressive, but it is.  Here’s why.

Spy increased its gross profit margin from 53.4% to 54.1%.  Of course total gross profit declined with the fall in sales, but hold on.

Operating expenses fell from $8.88 to $7.27 million, or by 18.1%.  As a percentage of revenues, they dropped from 51.4% to 49.5% even with the decline in revenue.

The result, according to the press release, was that operating income rose from $150,000 to $671,000 and net income went from a loss of $927,000 to a profit of $443,000 for the six month periods.

What!?  On a 15% revenue decline they had a monster turnaround on the bottom line!?  What the hell is going on here?

Seth Hamos, who is the Chairman of the Board and Acting Chief Executive Officer, is the guy who owned most of the debt in the company.  He stepped in after Michael Marckx resigned.  Seth had at least two things going for him.  First, he wasn’t from our industry and apparently didn’t suffer from all the preconceptions we all have about THE WAY THINGS ARE.  Second, he looked and said, “Well, I’m not going to get my money back if the company keeps losing money, so I guess I better try something different.”

That’s not an actual quote, but it’s how I always feel when I walk into a turnaround situation- nothing is sacred.

I’m guessing a few sacred cows were slaughtered for the barbecue.  Probably stopped selling to a few people who weren’t paying, didn’t merchandise the product right, or where they weren’t earning a good enough margin.  Wouldn’t be surprised if the number of SKUs declined.  I’m guessing there was some panic among the marketing staff when Seth asked, “What the hell are we spending money on this for?”

Again, not an actual quote.

The wailing and gnashing of teeth no doubt continued as he sliced some of those expenses.  But let’s remember the premise here.  Continuing to fund losses was a non-starter.

I’ve been in that position myself.  There’s always another way to spend marketing money to support retailers.  It’s always considered critical.  But, with some limits, most of the time when you cut a chunk of it, you find that nothing bad happens- at least immediately.  An open question is whether any of those cuts might impact the brand’s results down the road.

As always, if your product is checking at retail at a good margin, the retailer will want it.  If it isn’t, they won’t.  Spy believes itself to be a specialty brand.  It looks, with the actions it’s taking, that the company is confirming that and is positioning itself accordingly.

Three other brief financial comments; First, Spy’s net operating losses means no income tax is payable.  Second, I’m guessing Seth isn’t taking a salary.  Not paying whatever they were paying Michael Marckx and not paying income taxes didn’t hurt the bottom line.  Finally, there was interest expense being incurred on the debt before it was converted to preferred stock.  The press release doesn’t mention a dividend payment on the preferred stock.  In the future, a decline in interest expense could result in another boost in Spy’s bottom line from an accounting perspective.

What Spy seems to be doing is pretty much what I’ve been recommending since around 2007; sales growth is harder to come by so focus on your distribution, gross margin and controlling operating expenses with the goal of improving the bottom line.  That’s consistent with building and protecting your brand in an industry where actual product differentiation is hard to come by.

I’m sure Spy figured all this out without my help, but it’s nice to have a poster child to point to.

SPY Ceases to be a Public Company

SPY filed a form 15-12G with the Security and Exchange Commission on December 11th. The press release that accompanied the filing stated, “As a result of this filing, the Company ’ s obligations to file certain reports with the SEC, including annual, quarterly and current reports on Form 10-K, Form 10-Q and Form 8-K, respectively, was immediately suspended. Other filing requirements will terminate upon the effectiveness of the Form 15, which is expected to occur 90 days after filing.“

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More of the Same: Spy’s September 30 Quarter

I’m going to try and keep this pretty short. Nothing has really changed strategically. Spy is still in business only because its major shareholder has lent the company around $20 million. In terms of operations and expense management, they’ve done everything that I can see they can do. They tried to stake out a differentiable market position with their “happy” campaign. I thought that was pretty creative.

But they are in a market (sunglasses) dominated by big players and luxury brands. It’s an oversupplied market and to many of the brands, it’s just an accessory rather than the place where they have to make their money.

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SPY’s June 30 Quarter; Kind of More of the Same

As usual, I’ll start off my discussion of SPY by saying how much I like the brand and how I think they’ve done most of the right things in terms of operations and brand positioning. But then I move on to the financials (the June 30 quarter in this case) and bemoan, as I have before, how they are smaller in revenues than they need to be to get traction in the highly competitive sunglass market and support spending at the level required.

I don’t really even care about the $21.5 million payable to stockholders on the balance sheet. True, there’s some interest expense, but that’s been reduced since the debt holder reduced the interest rate last year. The only thing that debt does is prevent the company from being sold, which I think would have happened without that debt sitting there.

Revenues fell 0.75% to $8.12 million compared to $8.18 million in last year’s quarter. U.S. and Canadian revenues fell 1.64% from $7.03 to $6.91 million. In the rest of the world, they rose 4.67% from $1.16 to $1.21 million. They don’t discuss the impact of currencies, but I’d tend to look at that increase as being pretty good given the strength of the U.S. dollar. Here’s how they describe the sales decline.

“The period over period decrease in sales is principally attributable to lower sales of our prescription frames and goggle product lines which each decreased by $0.2 million, or 21.5% and 37.4% respectively… The decrease was partially offset by an increase in sales of our sunglasses, which increased by $0.2 million or 2.5%. Sales also included approximately $1.2 million and $0.3million of sales during the three months ended June 30, 2015 and June 30, 2014, respectively, which were considered to be closeouts.”

First, with just a little mental math you can see that the prescription frame business must be pretty small if a decline of $200,000 means that revenues fell by 21.5%. You can make the same argument for the 37.4% decline in goggles, though I’d be a bit more cautious given the seasonality of that business. Here’s the percentage of sales by product line from the 10Q.

SPY 6-30 10q 8-15

 

 

 

 

 

What’s of more concern to me is the $1.2 million in closeout business compared to $0.3 million in last year’s quarter. I’ve previously commented that SPY seemed to be getting inventory issues under control, but now I’m not so sure. The June 30 balance sheet shows a 21.2% increase in inventory from $6.56 to $7.95 million.

The gross margin took a big hit falling from 55.5% to 49.5%. Here’s what they say about the decline.

“Gross profit as a percentage of net sales was 49.5% for the three months ended June 30, 2015, compared to 55.5% for the three months ended June 30, 2014. The decrease in our gross profit as a percent of net sales during the three months ended June 30, 2015 compared to the same period in 2014 was primarily due to: (i) higher sales of closeout products at reduced price levels and (ii) lower sales of higher margin prescription frames.”

That seems to confirm inventory is an issue.

They continue to reduce operating expenses, which fell from $4.4 to $4.1 million. Interestingly, they have given early notice that they are terminating the lease on their headquarters and, in December of this year, expect to move to a new facility. Rent will rise from around $29,000 a month to $48,000.

The fall in the gross margin meant that operating income went from a positive $101,000 to a loss of $42,000. Interest expense was down from $751,000 to $491,000 for the reason I mentioned above. There was still a net loss, but it was down from $742,000 to $516,000. That’s less than the decline in interest expense.

On the balance sheet, equity is negative at $17.7 million. Practically speaking, however, you can consider the notes due to shareholder as equity. The current ratio declined a bit from 1.49 to 1.27. Current assets were up around $1 million, but the current liabilities rose more on the back of an increase in the line of credit.

That’s kind of it. If I could dig into one thing, it would the rise in inventory and the closeouts. I’d like to know it doesn’t indicate an issue with product acceptance in the market.

SPY’s March 31 Quarter; Curious About the Inventory

I have admired SPY for the organizational, strategic positioning, and expense control changes they’ve implemented in the last couple of years. But there’s a limit to how far you can reduce expenses. After that, SPY has to find ways to increase sales or its gross margin to find a way out from under its $21.5 million in shareholder debt.

That number, by the way, is actually down a few thousand from the end of last year’s quarter.   Good to see it no longer increasing.

Sales revenue was more or less constant, declining from $9.192 million in last year’s quarter to $9.131 million this year. The decline was “…principally attributable to lower sales of our sunglasses which decreased by 6.2% or $0.5 million during the three months ended March 31, 2015…The decrease was partially offset by an increase in sales of our goggle and prescription frame product lines, which increased by 44.1% and 9.4%, respectively or $0.4 million and $0.1 million, respectively, during the three months ended March 31, 2015…” Sunglasses are a tough market.

Sunglasses were 74.9% of total revenue, down from 79.4% in last year’s quarter. North American revenue was 86.5% of total revenue. Sales also included about $600,000 in closeouts, up from $400,000 in last year’s quarter.

The gross profit margin rose from 52.0% to 54.8%. That’s quite jump. It was the result of “…(i) increased efficiencies in product development and manufacturing that reduced the cost of our products; (ii) reduced air freight-in charges for new products.” Remember they’ve moved a lot of their sunglass production from Italy to China.

Sales and marketing expenses rose from $2.9 to $3.2 million “…primarily due to increases in marketing events, tradeshows and promotions.” I’m glad to see that increase. It sounds like they are spending it on the right things.

Income from operations improved from $84,000 to $193,000. Interest expense was down from $757,000 to $488,000 but remember the shareholder who owns most of the debt cut the interest rate last year and that largely explains the decline. The net loss declined from $742,000 to $409,000.

I do have a question or two about the balance sheet and cash flow. Cash provided by operations was $2.1 million ($2.28 million in last year’s quarter). Looking at the balance sheets for December 31, 2014 and March 31, 2015, we see a decline in receivables from $7.17 to $5.39 million. Inventory fell 13.1% from $7.7 to $6.69 million. They note in the 10-Q that, “During the three months ended March 31, 2015, the Company had positive cash flow from operations principally due to timing of inventory purchases and higher collections on accounts receivable.”

Last year, they said they had positive cash flow “…principally as a result of a significant reduction in operating expenses and increases in gross profit.”

So last year it was because they operated better. This year, as I read what they say, it was due to what sound like timing differences. People paid earlier than expected and inventory that was set to arrive didn’t. Cash flow from improved operations is lasting. Cash flows from timing differences reverse themselves in subsequent quarters.

Complicating this is that last year’s sales for the quarter were about the same as this year. But last year’s quarter ended with inventory of $4.34 million, where inventory this year was $6.69 million.

Their wording confuses me. Do they mean they would have had much lower or even negative cash flow if it wasn’t for the timing of inventory purchases and higher receivables collections?

Second, if the timing of inventory purchases helped cash flow that means to me that they didn’t have to pay for some inventory they thought they were going to have to pay for during that quarter. But their inventory at March 31, 2015 is already 54% higher than a year ago. And I guess that the inventory that they didn’t get in the first quarter will show up in the second. What are they going to do with it all?

My hope is that the explanation involves new orders and increasing sales. Maybe we’ll get better insight next quarter.

SPY’s Results for the Year and Some Thoughts on Their Market Position

As I’ve written before, I have a lot of respect for how SPY has restructured and repositioned itself. There seems to be an alignment of their corporate culture and market positioning that not only has the potential to differentiate the brand (in their market), but to save money and increase the efficiency of the organization.

Here’s how they put it in the 10K for the year ended December 31, 2014:

“We have a happy disrespect for the usual way of looking (at life) and this helps drive our innovative design, marketing and distribution of premium products, especially eyewear for youth-minded people who love to be outside doing what makes them feel most alive and happy. We feel a primary strength is our ability to create distinctive products that embody our unique, happy, and irreverent point of view, and this has helped us become what we believe is one of the most recognizable action sports and eyewear brands in the world, with a twenty-year heritage in surfing, motocross, snowboarding, cycling, skateboarding, snow skiing, motorsports, wakeboarding, multi-sports and mountain biking. We have a happy disrespect for the usual way of looking (at life) and this helps drive our innovative design, marketing and distribution of premium products, especially eyewear for youth-minded people who love to be outside doing what makes them feel most alive and happy. We feel a primary strength is our ability to create distinctive products that embody our unique, happy, and irreverent point of view, and this has helped us become what we believe is one of the most recognizable action sports and eyewear brands in the world, with a twenty-year heritage in surfing, motocross, snowboarding, cycling, skateboarding, snow skiing, motorsports, wakeboarding, multi-sports and mountain biking.”

So is irreverence really an attribute that can provide a competitive advantage? Think about that and we’ll get back to it after going over the numbers.

For the year, sales rose 0.9% to $38.1 million. Below is the breakdown of those sales by product line.

spy 12-31-14 10k image 1

 

 

 

 

 

 

The sales increase was due to increases in prescription frames and goggles. Sunglass sales fell by 5.7%, or $1.5 million. They say that decline was “…principally attributable to an overall decline in the consumer market, particularly during the second quarter of 2014, coupled with several key retailers currently holding lower levels of inventory, lower closeout sales of our sunglass products and the loss of a key account.”

I’d note that SPY gets 64% of revenues from the very competitive sunglass category (down from almost 69% last year. 16.5% of revenue internationally is low compare to a lot of other companies, but that may turn out to be a good thing given the strength of the U.S. dollar. A strong dollar means that SPY’s product cost falls (same for all internationally sourcing companies). But it also means that the dollar value of their internationally sold product comes down when translated. The more international sales you have, the bigger the currency related decline in those sales.

Gross profit margin rose from 49.9% to 50.6%. The increase was due to purchasing more product from China (instead of Italy) and having lower closeout sales, which fell from $2.8 to $2.0 million.

Sales and marketing spending grew by $0.2 million to $11.5 million. I see they spent more on marketing events and promotions. Good. Advertising expense rose from $394,000 to $540,000. Also good.

Meanwhile, SPY cut general and administrative expenses by 6.9% to $5.7 million. They did it by reducing bad debt expense $0.3 million through better collections and consulting and outside services by another $0.3 million. They took a chunk of those savings $0.4 million) and invested them in salaries. I assume for people who are doing productive things for the brand.

The result was operating income that grew from $399,000 to $890,000.

Below the operating line, there’s that inconvenient line “interest expense.” It declined from $2.97 million in 2013 to $2.5 million in 2014. Remember the interest rate was reduced significantly during 2014 and you’ll see that impact even more in 2015.

Largely as a result of that interest expense, SPY reported a loss for the year of $1.9 million, an improvement from the loss of $2.9 million the previous year.

In terms of revenue, the fourth quarter was stronger than last year’s quarter, with revenue rising from $8.6 to $9.8 million. The net loss was $423,000 compared to $1.265 million in last year’s quarter. That explains most of the improvement in the bottom line over the whole year.

Over on the balance sheet, there’s still that note payable to shareholder of $21.6 million, but it’s up only very slightly from $21.5 million at the end of the previous year. However, the line of credit rose from $4 million a year ago to $6.8 million at the end of this year.

The current ratio has fallen a bit from 1.6 to 1.3. I see that receivables rose 9.6% with sales up just 0.9% and their mention of collecting receivables better. And I see yearend inventory up 31% to $7.7 million. I wonder if that might not have something to do with lousy snow conditions up and down the West coast making it difficult to sell snow goggles.

If so, SPY is hardly the only company with that issue. I see they’ve increased their allowance for returns from $1.6 to $2 million, so maybe I’m on to something.

As we transition from the financials to strategy, I want to remind you of the licensing deal SPY signed. Here’s how they describe it:

“In December 2013, we entered into a merchandising license agreement, pursuant to which we licensed the SPY IP [intellectual property] to a third party…The agreement provides that the licensee shall develop, introduce, market and sell certain licensed products incorporating the SPY IP, including men’s and boy’s apparel, bags and luggage, consumer electronics, protective cases, and other unisex accessories, throughout North America through certain distribution channels, other than deep discount retail channels.”

They expect those products to start generating revenue this quarter, but don’t offer any clue as to how much. Wish I knew what SPY’s definition of “deep discount retail channels” was. I also wonder if these products will get sold into any existing SPY accounts and how that will get managed.

To get out of its balance sheet hole, SPY needs more bottom line earnings. Perhaps these royalties will make a meaningful contribution to that. Meanwhile, SPY is a small company in a market of some big companies with much greater resources than SPY. The traditional response of smaller companies in this situation is to position itself as a niche company, and I’d say that’s what SPY has done.

Here’s how they describe it:

SPY “…is a creative, performance-driven brand that is fueled by collaborative efforts across various facets of youth culture, including competition, art, music and day-to-day athletic performance. We strive to ensure that our in function and design, as well as style. We do this, in part, through partnerships with our world class athletes who help us design, then wear and test our products during training and competition. We believe that the intimate knowledge of our customers’ lifestyles is what helps us develop a stronger, more relevant product offering for our market. We reinforce our irreverent brand profile through unique and disruptive marketing, using traditional and non-traditional means to convey our branded point of view to both entertain and edify people…”

You can’t have intimate knowledge of your customer’s lifestyle if that customer base is very broad- especially as a small company. This is a bit of a conundrum for SPY, and for similarly positioned companies. You need growth, but as you move to broaden your existing market, you may start to lose the thing that has made you special to the existing customer base without attracting the new customers.

What I think may happen is that the attitudes and lifestyles of the millennial generation (larger than the baby boomers) may reduce this challenge. Facilitated by mobile/internet/omnichannel/ecommerce, etc. certain traditional issues of segmentation and perhaps demographics are, I think, going to become less important.

That’s where SPY’s opportunity may lie.

SPY’s September 30 Quarter: Not Bad

Last time I wrote about SPY (see it here) in August, they had reported a quarter over quarter sales decline of 18.1% from $10 million to $8.2 million. They told us their largest retail sunglass customer had stopped carrying their brand in the quarter that ended June 30.

But in that quarter’s 10Q they said “The decrease in sunglass sales during the three months ended June 30, 2014 is principally attributable to an overall decline in the consumer market coupled with several key retailers currently holding lower levels of inventory and fewer closeout sales of our sunglass products.”

I was left to wonder whether they had a one-time issue with a big retailer, or a more fundamental problem with the overall market.

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Losing a Big Customer Sucks: SPY’s Quarter

Long time readers have been through the saga of Spy with me. But for the last couple of years, they’ve pretty much done things right. They’ve cleaned up inventory, managed expenses down, focused on a niche they can compete in, strengthened the management team, done some innovative product things, gotten out of products that weren’t working, and created and communicated a company vision consistent with their market position.

So then, in the quarter ended June 30 their largest retail sun glass customer stops carrying their brand. They also chose not to ship to their largest moto customer due to credit issues. I’m okay with that. I’ve always thought that only shipping to people who could pay you was a pretty good idea.

Quarterly sales declined 18.1% from $10 to $8.2 million, the first quarter over quarter decline in a while. The good news, they tell us in their conference call, is that the sales to the big retail sunglass customer were their lowest margin sales. We see that in their gross margin, which rose from 52.8% in last year’s quarter to 54.4%. But there’s a bit of lipstick on pig syndrome here, as total gross profit fell 13.9% from $5.28 to $4.54 million.

I also want you to see what they say about the sales decline in the 10Q, as it’s not as specific as the conference call in attributing most of the decline to the loss of one customer. “The decrease in sunglass sales during the three months ended June 30, 2014 is principally attributable to an overall decline in the consumer market coupled with several key retailers currently holding lower levels of inventory and fewer closeout sales of our sunglass products.” I am left wanting to know exactly how much in sales the one customer cost them.   I’m wondering why they didn’t mention it in this section of the 10-Q.  If most of the decline was from one customer, well, fortunes of war.  But if that customer doesn’t explain most of it, there’s a whole different problem.

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SPY’s Results for the Quarter; Operating Income Rises, but Interest Expense is a Killer.

As usual, SPY had the courtesy to file its 10Q with the SEC about the same time they did their conference call, making my job easier and my analysis more timely. You can see the 10Q here.

Sales for the quarter ended March 31 rose 2% from $9 to $9.2 million compared to the same quarter last year. In this market, I wouldn’t necessarily call 2% increase in revenue a bad result. Especially since we discover during the conference call that SPY lost some revenue in three ways.
For the first time ever, SPY had no goggles to sell during the first quarter because they were all sold out.

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SPY’s Year: Sales and Margin Up, Expenses Down

When I review SPY’s results, we get to see what a smaller specialty brand is doing. They would prefer, I imagine, that they weren’t public and that we didn’t get to look over their shoulder. But for the time being anyway, we do.

I suppose I need to confess that they are doing most of the things I think, and have written, that smaller specialty brands should do, so I’m likely to approve. Let’s see what those are. 

I’m going to start with the cash flow and note that in the year ended December 31, 2013, they generated positive cash from operating activities of $683,000. Not a huge number, but last year they used $5.2 million in operations. To me, getting to positive operating cash flow is more important than making a profit for a company like SPY that’s recently out from under a few tough years.
 
Sales for the year were up $2.2 million or 6% to $37.8 million. All but $100,000 was SPY branded product. They sold $32.6 million of the total in the U.S. and Canada.
 
Gross profit margin increased to 50% from 46% the previous year because they sold higher margin product, made more product in China (instead of Italy) and earned higher margins on closeout product. They also said it was higher because they had “…lower overhead as a percentage of sales partially due to the consolidation of our European distribution center to North America.” I don’t really understand that last one because I don’t know how it impacts product cost.
 
Sales and marketing expense was down 18% from $13.8 to $11.3 million. Advertising was reduced from $819,000 to $394,000. That’s because, well, they spent less. They also reduced SG&A expense from $0.2 million to $6.1 million. They did that in spite of $0.1 million spent in relation to two board of director resignations and $0.3 million related to an officer resignation. Shipping and warehouse expense was also down $300,000.
 
So if you increase your sales, improve your gross margin and reduce your expense guess what happens? SPY had a positive income from operations of $399,000 compared to an operating loss of $5 million last year. We learn in the conference call that it’s the first operating profit since they went public in 2004.
 
They still had a bottom line loss of $2.86 million, down from a loss of $7.24 million last year. But that is almost completely the result of $2.97 million in interest expense, up from $2.39 million last year. This is because  of the $21.5 million due to shareholder we see on the balance sheet, up from $19.1 million at the end of last year. There’s also a line of credit outstanding of $4 million due to an asset based lender.
 
If it wasn’t for the shareholder debt, the balance sheet would be okay, though I do note an increase in receivables of 16.6%, way in excess of sales growth. On the other hand, I love the 6.4% reduction in inventory even with the increase in sales. SPY has had some inventory problems in the past, and we can hope this reduction suggests that’s coming to an end.
 
Next, let’s talk about strategy and tie it to the financial results. Here’s where you can see the 10K if you want to follow along.
 
On page nine, talking about product development, they note, “Our products are designed for individuals who embrace the action sports, performance and lifestyle markets.” To me, that correctly sets some limitations on where their distribution can go, and is typical and appropriate for a niche brand.
 
In the conference call, management noted that they had run out of snow goggles by the end of 2013 and that it was their first year of running out of inventory. They also noted that they had strong orders for next season. The one questioner expressed some concern that, as a result, they might have left some sales on the table. CEO Michael Marckx allowed as how they probably had.
 
I was waiting and hoping he’d suggest to the questioner that running out of inventory had something to do with next season’s strong orders, but he didn’t.
 
SPY expects its revenues in 2014 to be in the $39 to $40 million range with a “modest improvement” in gross profit. I was also interested to learn that they will start paying interest on the shareholders debt in cash, rather than accruing it as more debt.
 
It is interesting what you can do with your expenses when you are a bit cautious with your distribution. I am reluctant to draw too straight a line between controlling distribution and reducing marketing expenses (and SG&A, and inventory, and reducing working capital investment) but I’m pretty sure there’s something to it. Retailers seem to favor product that sells through at full margin for some reason, and that makes business easier and more profitable for everybody.
 
I am pretty sure SPY has also benefitted from the brand refocusing and related company reorganization. As they describe it, “…to sustain the relevancy of our brand to our target market and beyond, we reorganized our entire company, realigned our branding efforts in order to better reflect the original intent of our brand, and have continued to make improvements since then.” Sharing a focus, direction, sense of purpose matters. Sorry if that sounds a little mystical, but I suspect it’s part of the reason they could increase sales and cut expenses.
 
SPY’s business strategies in some cases don’t sound much different from their much larger and better resourced competitors and that could be a problem. I also noticed there wasn’t a word about online or direct to consumer in the whole 10K, and that’s certainly different from most brands. Finally, if they haven’t already, they are going to run out of ways to cut expenses, and bottom line improvement this year may have to come from growing sales.
 
But for now, let’s just note the continued improvement and see what happens next.