Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Kristine Koerber – JMP Securities, LLC.
Analyst for Kristine Koerber – JMP Securities, LLC.
We’ve been hearing that one of your competitors has been testing a free shipping promotion on orders over $4.99 and that it may become permanent. Could you comment on this and what it may do to the competitive environment and would you ever consider doing something along those lines, then secondly, could you talk about the percent of business you plan to outsource for this holiday and eventually how much you believe that you can ultimately outsource and then lastly could you provide an update on any initiatives you are working on to grow the business internationally.
Jeffrey T. Housenbold
As it relates to free shipping across e-commerce it’s clearly a promotion that resonates with customers and we have historically run free shipping promotions, often with hurdles of either $25, $30, or $50 throughout the gift giving seasons with an emphasis in the fourth quarter. We’ll continue to test a variety of different promotions driving different business results from trial to repeat to up sell and cross sell and continue to optimize within our business and we think the success we’ve enjoyed over the last few years is positive proof that mix is working.
As it relates specifically to competitors, we can’t comment about what their strategy or what they’re doing. When you’re a distant third in the industry, you’re going to deploy a much different approach to try to capture share and we think growing the top lien as well as continuing to increase free cash flow is the right strategy for us.
As it relates to outsourcing, the strategy we deployed in the fourth quarter of 2007 in outsourcing some of our excess demand in those peak periods to some strategic outsourcing has proven very successful in allowing us to reduce capital expenditures and increase free cash flow, so we’ll continue to do that. We’re not prepared to give a specific percentage but to date we haven’t outsourced cards or Photo Books where we have a demonstrable quality differential in the binding and the complexity of those products makes it more difficult to outsource but we’ll continue to look for additional ways to gain efficiencies and now capital expenditures.
As it relates to international, we continue to look at opportunities to expand the Shutterfly brand globally. We think the demand for our products and services is a global one, it’s a humancentric one, to share and preserve life’s memories, so we continue to look at opportunities to do that and what the appropriate investment against the [har biston] and reward and the impact to the P&L so no specific update as it relates to international today but it is an area of opportunity for us and an area we’ll think we’ll allow to continue to grow the size of the franchise.
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