Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of [Mike Regan] of [Hawkshaw Capital Management, LLC]
[Mike Regan – Hawkshaw Capital Management, LLC]
In terms of the increase marketing spend is there anyway to quantify just how much was a base for future sales in terms of the cross marching that’s going to occur I guess in the third quarter and the fourth quarter?
Kevin A. Green
In terms of prospecting and the costume business we increased the prospecting by 110% prospecting circulation while the house file or customer circulation increased by about 59%. So, we definitely skewed it towards the new customer acquisition side which as you know has lower response rates but will fuel the business going forward.
[Mike Regan – Hawkshaw Capital Management, LLC]
Just looking within the quarter and the incremental cost margin on the increased ad spend was about 70% so presumably we should see a benefit going forward if indeed that is just basically spending marketing that you would have spent in the future in this quarter. Am I thinking about that correctly?
Kevin A. Green
Partially. It’s an offset to the Birthday Express circulation that you would see in total and certainly for Costume Express it positions us better for next year but those customers acquired we’ve been able to attain the birthday information for the children in the household through openly available sources and we’ll be able to position those customers acquired in the appropriate months as we understand there are birthdays in those households. So, yes you will see it impact the balance of the year but it’s not in one chunk it will be spread out.
[Mike Regan – Hawkshaw Capital Management, LLC]
Have you broken out what the advertising spend was versus the market spend in the second quarter?
Kevin A. Green
We have not broken that out.
[Mike Regan – Hawkshaw Capital Management, LLC]
Okay. In terms of the inventory that seemed a little higher than expected and I guess it’s because of the volume discounts. How much of the increase in the growth margin is attributable to essentially taking more inventory risk with the volume discounts and such?
Kevin A. Green
I don’t believe it’s very much in the sense that we’re paying closer attention to the quantities that we order and while volume discounts we have to order more we do it in the Birthday Express brand where we’re able to sell products month after month after month. It allows us to order higher quantities but not to fill the same kind of inventory you would if you were going for higher minimums for a costume business where you have to carry the inventory the full year. So, while some of that is due to minimums it’s mostly the shift in the business where we were left over with some Costume Express inventory that we’re going to carry to next year and it’s good inventory. We feel we’re fully reserved for whatever’s going to be put on sale through markdowns and the small amount that would go to a liquidator but we’re confident in the inventory level. It’s good inventory and we’re properly reserved and I think that the margin reflects the markdowns and reserves that we have in place. So, we’re comfortable with the inventory as it stands today.
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