Acco Brands Corporation

and welcome to the first quarter 2019 ACCO Brands Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Jennifer Rice, Vice President of Investor Relations. You may begin.

Good morning, and welcome to our first quarter 2019 conference call. Speaking on the call today are Boris Ellisman, Chairman, President, and Chief Executive Officer of Acro Brands Corporation, and Neil Fenwick, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the Investor Relations section of acrobrands.com. When speaking to quarterly results, we may refer to adjusted results. Adjusted results exclude transaction, integration, and restructuring costs, and reflect an adjusted tax rate. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in this morning's earnings release and the slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking adjusted earnings per share, free cash flow, net leverage, or adjusted tax rate guidance. Forward-looking statements made during the call are based on certain risks and uncertainties and our actual results could differ materially. Please refer to our press release and SEC filings for an explanation of certain of these risk factors and assumptions. Our forward-looking statements are made as of today's date, and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session. Now, it is my pleasure to turn the call over to Boris Ellisman.

Good morning, everyone. I'm pleased to report that the year got off to a solid start with higher constant currency sales, stable comparable sales and improved margins, driven by great execution in North America, continued organic growth in EMEA, a good back-to-school in Brazil, and strong performance of the recently acquired Goba business in Mexico. We were disciplined in implementing price increases, which is enabling us to begin to recover the lost margin from inflation and tariffs. and we started to see some benefits from the additional cost reduction actions we began late last year. While Q1 is still our smallest quarter, this stronger start gives us confidence in meeting our goals for the year. I'm going to begin my segment commentary with North America. Sales in North America declined at a much lower rate than what we saw in the back half of 2018, down 3.1% on a reported basis, and 2.5% on a comparable basis. As orders in the wholesaler channel stabilized and we saw double-digit growth in Kensington computer products and modest organic growth in the Canadian market. The decline that we experienced was due to the timing of orders and the continued effect of the loss placement of certain calendar products last year. Overall, we continue to manage the channel transition well. Q1 is typically a challenging sales quarter in North America, and I'm very encouraged by our strong start. In the second and third quarters, the faster-growing channels, such as retail and mass merchants, carry a higher proportion of sales due to back-to-school shipments. Our initial view on our North America back-to-school season is that sales growth should be consistent with prior year. When we had a good back-to-school season overall, and grew sales 2%. In addition, we expect to shift back to school orders earlier this year. Overall for the year, we still expect North America sales to decline low single digits. Beyond sales, North America operating margin increased as new pricing started to recover higher product costs, and due to tight management of expenses, manufacturing and distribution efficiencies, and as the incremental cost reduction initiatives we put into place late last year and early this year began to take hold. Overall, I am pleased with the improved performance in our North America business and the execution by our team. Turning to EMEA, once again, this region delivered strong top and bottom line results. While reported sales declined 5% entirely due to currency, comparable sales increased 3.5% as we continue to see the positive sales effects of cross-selling legacy ACCO and Ascelti products due to new product launches. The sales and marketing teams have done a great job in this region. In addition to strong go-to-market execution, the operations teams in EMEA have continued to deliver. Excluding a $1.6 million adverse impact of foreign currency, EMEA's underlying operating income increased, driven by cost savings, and synergies. I remain very pleased with our European results. Results in the international segment were again mixed. We had a good quarter in Brazil, with growth in Telibre notebooks during a strong back-to-school season. We did well in Mexico, driven by the strong performance from the recently acquired Barelito business. The results in Brazil and Mexico were more than offset by the declines in Australia. The overall market in Australia is soft, and we continue to work through the impact of customer consolidation. In total, I am pleased with our start to the year. As we enter the early phases of the back-to-school season in North America, we have taken prudent steps beginning in Q4 of last year to pre-buy raw materials in certain inventory to secure availability and avoid further tariff and inflationary increases. We also began production of manufactured back-to-school products earlier to maximize our product availability during the peak season. These actions, in combination with anticipated earlier back-to-school shipments, had an impact on our operating cash flow this quarter and will continue to have some impact in the second quarter. This is consistent with our expectations as communicated on our call in February. For the full year, we'll continue to target 165 to 175 million of free cash flow. Now, I'll ask Neil to give you a more detailed look at the quarter. Neil?

Thank you, Boris, and good morning, everyone. First quarter sales decreased 2.9% due to the adverse impact of foreign currency, which more than offset growth from the GOBA acquisition and growth in EMEA. We had a net loss of 600,000, or one cent per share, This included a $5.6 million adjustment to tax expense related to a reserve for our Brazilian tax dispute that needed to reflect a step-up in potential liability as we enter the judicial courts, and also included $3.2 million of restructuring and integration charges. Adjusted net income was $8.8 million, or $0.08 per share, similar to last year, despite a $0.03 headwind from FX, a higher adjusted tax rate, and higher interest expense. Gross margin improved 50 basis points to 31.9%, and adjusted gross margin improved 60 basis points to 32%, primarily driven by cost and synergy savings, as well as price increases. SG&A expenses were down in the quarter, and as the percent to sales were lower by 80 basis points on a reported basis, and lower by 50 basis points on an adjusted basis. The improvement in adjusted SG&A ratio was primarily due to the cost savings and acquisition benefits. All in, operating income increased and operating margin expanded 160 basis points on a reported basis and 100 basis points on an adjusted basis. Our adjusted tax rate was 33.3% in the quarter, and reflects a geographic mix of earnings and the small quarter. We still expect our full-year adjusted tax rate to be in the 30% to 31% range. Turning to some additional details of our segment results. In North America, segment sales decreased 3.1% and excluding currency decreased 2.5%. Pricing added 3.5%. Volume was lower due to the timing of orders and the lost placements of calendar products that began last year, as Boris mentioned. Despite the lower sales, a strong gross margin and lower SG&A drove improved operating performance in the quarter. North America operating income margin improved 240 basis points and on an adjusted basis increased 230 basis points. The increase was driven by cost savings and pricing actions. In our EMEA segment, sales decreased 5% due to currency, which reduced sales by nearly 13.5 million, or 9%. Comparable sales increased 3.5%, the strongest rate we've seen recently, driven by growth mainly in computer products and shredding due to new products and cross-selling. The timing of Easter was also a benefit, as it was later this year, falling in Q2, whereas last year we felt some effects in Q1. EMEA operating income was adversely impacted, by $1.6 million of foreign currency. Excluding this, EMEA operating income increased and margin expanded due to cost savings and synergies, which offset higher product costs. International sales increased 1.5% due to the GOBA acquisition in Mexico, which added $11.6 million in sales. Excluding the acquisition and the impact of currency, sales declined 4%. We continue to see good results out of Brazil, where the back-to-school season was strong. Mexico also had a good quarter, aided by the great performance with the Barolito-branded products that we recently acquired. However, as Boris noted, Australia results were lower. The overall market is soft in Australia, back-to-school was soft, and customer consolidation continues to play out. International segment margins contracted, driven by Australia. We are further reducing our cost structure in Australia, in order to better weather conditions there. Turning now to our balance sheet and cash flow. Our inventory balance is up $105 million year over year, driven mainly by last Q4, as we forward bought materials to secure supply, support new product launches, and mitigate the risks of both known and anticipated inflation, including tariffs. We also expect back to school to be more seasonally weighted to our second quarter this year, requiring the earlier production of certain products. We expect inventory to further increase for this seasonal peak in Q2, but then to step down in Q3 and further in Q4, particularly as we do not anticipate repeating the Q4 2018 advanced purchases. We used $61.3 million of net cash from operating activities and including capex of $7 million. Therefore, our free cash flow was a use of $68.4 million in the quarter. The large cash outflow was expected as we paid for the increased inventory. We expect less cash use in Q2 of this year than we had in Q2 of 2018, but it will still be a seasonal outflow as back to school ramps up. In the quarter, we repurchased 1.3 million shares of stock for a total of 10.5 million and paid 6.2 million in dividends. For 2019, we still expect free cash flow of 165 to 175 million with our cash generation in the third and fourth quarters. We are reiterating our revenue, adjusted earnings per share, and free cash flow guidance for the year. And, as always, we have included certain assumptions in our slide deck on page 13. With that, I'll conclude my remarks and move on to Q&A, where Boris and I will be happy to take your questions. Operator?

Ladies and gentlemen, at this time, if you have a question, please press the star, then the number one key, on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. And our first question is from Bill Chapelle from SunTrust. Your line is now open.

Thanks. Good morning. Good morning, Bill. Just a couple country questions. First, On the U.S., maybe you talked about a little bit earlier back-to-school. Can you give us some quantification and maybe qualification of why that would be the case and if that bodes well for a better back-to-school season if you just have products on shelf earlier?

We believe that the back-to-school season will be good from a sell-in perspective. Obviously, we don't have visibility to a sell-out yet. But based on customer orders, we believe that we'll see growth this year, selling growth this year compared to last year. Roughly similar to what we saw last year, we saw 2% growth last year, and we kind of anticipate about that level of growth this year. We're also seeing that customers are requesting shipments earlier than they did last year. So we anticipate that Q2, will be larger from a relative weight perspective, but maybe offset some in Q3. Again, we have less visibility into Q3. So overall, we're very pleased with where we are with back to school. We believe it will be a good season, and we anticipate a pretty good Q2.

And in sticking with the U.S., where do you think we are on kind of D-stock from some of the key retailers. Do you expect another round to affect 3Q, 4Q, or are we largely past that?

You know, I think overall we're pretty much done, Bill. Inventory is at fairly low levels with customers. You know, the only thing to pay attention to for us probably in the Q4 timeframe is what happens with Staples and Ascendant. Since they're now one company and certainly leveraging back ends, there may be some additional action that they're taking. But we haven't heard anything yet, and we haven't seen anything yet. So for now, things are in a good position, but we're still paying attention to this stuff.

Got it. And then last one for me, just on Australia, that's been a challenging market for at least a year now. And so just trying to understand is something changed or we're just bouncing along the bottom or obviously you're taking some more strategic actions and cutting costs there. So I'm just trying to get a sense of where it stands and even if there's a sign of it will start to improve at any point this year.

Yeah, Australia has been a difficult market for at least a year. There have been two major customer consolidations there. So there's a bunch of inventory takeout action that is happening in that market. And the Australian economy overall is fairly muted. As Neil mentioned in his prepared remarks, the back-to-school season we just ended was weak overall, not just for us, but for the industry overall. So we think Australia will have muted growth for the next year or so. and we are preparing for that by just fine-tuning our cost structure to make sure that our costs are aligned to the revenue projections that we have.

Got it. Thanks so much. Thank you, Bill.

Thank you. Our next question is from Hamed Korsan from BWS Financial. Your line is now open.

Hey, good morning. So first off on the Kensington line, is that – Just an anomaly within the quarter, are you seeing, you know, progression of orders from, you know, let's say Q4 of last year, Q1 of this year, and then going into Q2?

No, it's not an anomaly at all. We've seen consistent growth out of Kensington at least for the last 18 months. In 2018, we saw double-digit growth there, and in Q1, we're seeing double-digit growth. So, you know, as we've... We reworked that line to move away from the consumer market and focus on the B2B market. We also got out from a lot of commodity products and moved into more value-added products. We fine-tuned our go-to-market. We fine-tuned our product development, and it's bearing fruit. So we're seeing good results, and we anticipate that we will have a good year from Kensington.

Okay, and then as far as the inventory balance goes, it went up by about $50 million between Q4 and Q1. Is that all back to school?

It's mostly back to school. There is some inventory that's associated with us pre-buying raw materials ahead of projected tariff increases, and some inventories step up just because of the cost inflation. But the majority of it is back to school. Okay.

Do you think you have better controls over your costs because you have this much inventory right now?

Well, yes, certainly we have inventory, mostly inventory shipped for back to school. So if they're changing in cost, they will not affect us.

No, I was asking, as you deplete these inventory levels, how much of a buying power do you have with your vendors, right? I mean, do they give you better deals, or are you forced to take higher prices because you're not buying as much anymore this year?

I don't think our ability to negotiate has changed at all, Hamed. I don't anticipate any dilution of our buying power as a result of us holding inventory. I think we're in a good place.

Okay, and the last topic was on Europe. I know it's a lot of FX there. How much traction do you have as far as growing SL tape further from a sales synergy standpoint on a constant currency basis?

I'm very pleased with our results in Europe. I think the team there is doing great. As Neil mentioned, we've had the highest growth They are 3.5%, organic growth at 3.5% that we've seen in a very long time. I can't remember how long. You know, it's hard to predict the future, but we are in a good position to continue to grow the business, and I think the team is executing really well, not just on the revenue side and growth side, but also on the synergy side. So, you know, if there's one business that's operating on all cylinders for us, it is definitely Europe. Okay. Thank you. Thank you.

Thank you. Our next question is from William Reuter from Bank of America Merrill Lynch. Your line is now open.

Morning, guys. Good morning, Bill. So it seems like for the last couple of years we've seen better back-to-school trends than the underlying growth rates that we're seeing in North America in general. Can you help me understand the difference between the trends during that period and then the remainder of the year?

Sure. The back-to-school business is largely driven by mass merchant and retail channels. Those channels are healthier. They're seeing better growth overall. They're getting the consumer traffic. And as a result, they're doing better and we're doing better. And the categories they sell, specifically consumer categories or school categories, are also faster growing than some of the office categories, specifically storage and organization, for example. So we've talked now for several quarters that our North American business is going to be more weighted towards Q2 and Q3 and more challenged in Q1 and Q4 just because of the seasonality of the business and which channels get to participate in which parts of the year. So it's natural that businesses are doing, back to school is doing better, and it's natural that we do better during that time of the year. Did I answer your question? That makes sense.

You did, absolutely. And then with regard to your outlook for inflation of inputs, you mentioned that you've pre-purchased some of your inputs ahead of what could be potential tariffs. What is the outlook in terms of the inflation you're seeing on a dollar basis globally considering for 2019 if we include transportation as well as your other inputs?

We are projecting inflation, year-to-year inflation. The costs right now are fairly stable, I would say, from Q4 on. But if I look on a year-to-year basis, it's still fairly significant. If I look at North America, for example, we're talking about probably in the $30 million incremental range. And we are projecting inflation in EMEA and international as well. We have taken pricing action, as we normally do, to offset the impacts of commodity inflation. So from a margin perspective, I still expect us to be a gross margin perspective. I still expect us to be in that 33 to 34 range that we give guidance on.

Bill, if you remember, most of the inflation we saw last year was actually impacted the very back end of the year. We got the annualization of that inflation. It hasn't necessarily gotten any worse. It's just it's much higher than it was at the beginning of the year. And obviously, for half of our business, They buy a lot in China, in USD, and sell in their local currencies, in particular places like Europe, where you've had a big currency movement. That's also inflationary for them in terms of cost of goods.

That makes sense. And then just lastly, if you could just provide a little bit of commentary around M&A and what you're seeing right now in terms of, I guess, the amount of opportunities, I guess, valuations, and whether they seem attractive to you at this point. Thanks.

Yeah, you know, there's really nothing new to report. Same as we discussed before, the funnel remains robust. The opportunities are there. We think we have total funnels probably $3.5 billion of opportunities, only a portion of which are actionable, but it's certainly still big enough to move the needle for us. But we're being very disciplined in how we go about it, and If we find something that makes sense from a strategic and financial perspective, we certainly have the capacity to act on it. But we also have a good business, good organic business, and can grow shareholder value just by driving organic growth and margin expansion.

Great. I'll turn it to others. Thank you.

Thank you, Bill. Thank you. Our next question is from Chris McGinnis from Sidoti and Company. Your line is now open.

Good morning. Thanks for taking my questions.

Good morning, Chris.

I was wondering, just a follow-up on Australia. When you talk about the industry consolidation there, is that similar to what North America experienced? Can you maybe just elaborate a little bit on that? Thanks.

I would say it's actually probably worse than North America experienced. You had number two and number three biggest customers who merged, and then probably number four and number five merged as well. So you have real consolidation going on, especially in the commercial channel in Australia. And those customers are obviously working through their integration activities and taking a bunch of inventory out. So, you know, Australia has their local, you know, issues that they're working through from a market perspective. We have really good market position. We have very broad distribution there. I'm very happy with our business in Australia overall, but as the customers consolidate and the industry evolves, obviously it has effect on our business.

Sure. I think you referenced maybe some concerning Q4 around Staples and Ascendant. Is there any concern of now that They have more buying power. They're coming to you asking for price concessions.

Chris, that happens every day with every customer. Yes, of course that happens, and we expect them to do that. But we run our business for our shareholders, and I have a lot of confidence in our ability to do what's right for our shareholders. It may take us a quarter or so to respond, But as we're seeing with the Q1 results, we do respond and we adjust and we react and we reorient our business in such a way that it delivers for our shareholders. So I'm very confident in our continued ability to do that no matter what happens with Staples and Ascendant.

I appreciate that. Good luck in Q2. Thanks for taking my questions.

Thank you, Chris.

Thank you. Our next question is from Kevin Steinke from Barrington Research. Your line is now open.

Good morning. In terms of the price increases you implemented in January, just wondering what the realization was on those price increases. You were able to get pretty much everything you asked for. Should we see more benefit from pricing as we move throughout the year?

The answer is yes and yes. Yes, we got everything we wanted. It takes time to see the realization of price increases because not everything happens specifically on January 1st. There's a progression through the quarter of when some of the pricing goes into effect. So we saw, I believe, 2.9% in the first quarter, but we do expect to see incremental effects from pricing in Q2 in North America as it's fully now rolled out, effective end of Q1. So yes, we will see incremental benefit.

Okay, great. And then it sounds like Mexico had a good quarter I know conditions were a little more challenging in Mexico last year, I believe, due to a customer changing their inventory management strategy. Are we kind of past that headwind now, and what are you expecting for the rest of the year in Mexico?

Yes, Kevin, you're exactly right. We had a customer that was taking a lot of inventory out, especially in the first half of last year. So we obviously anniversary that situation. We don't have that anymore. Mexico did have a good quarter. It was especially driven by our acquisition that we made in July of last year by the Barilito branded products. I expect Mexico to have a good year. We don't have the inventory headwind that we faced last year, and I expect Mexico to deliver good growth.

Okay, great. That's all I had. Thank you.

Thank you, Kevin. Thank you. Our next question is from Joe Gomes from Noble Capital. Your line is now open.

Good morning.

Good morning, Joe.

I was wondering if you might be able to talk a little bit on, you know, some of the other channels and, you know, what kind of growth rates we're seeing there, you know, what percentage of the business they take up, you know, specifically like Amazon and ETH detail overall and maybe a little bit more color on the dollar store channel, which is something you've talked about in the past and how that is growing.

Sure. Let me start with our biggest channel, which is independence. Independence have done really, really well. It's a majority of our business in Europe. They're taking share there. It's a majority of our business in Brazil. They're taking share as well. And Independence had a really good quarter in North America as well. So that channel is doing extremely well and taking share from some of their larger competitors. ETL continues to grow fast. We had really good growth internationally with ETL. It was a little bit slower in North America as we worked through some of the pricing implementation issues in North America. Mass is doing well. It's very customer specific, but overall Mass is doing well, and we continue to see Mass take customer share, take consumer share in the overall industry. From a dollar store perspective, we are fine-tuning our participation in dollar stores. We had rapid growth last year. It's still a fairly small part of our business, certainly less than $10 million a year, but fairly rapid growth last year. But it was very margin dilutive for us. So this year, we're fine-tuning our assortment to make sure that we could have profitable growth. So I expect this year to have less sales in dollar store, but certainly delivered more gross profit dollars to the company than last year. And OSS, Office Product Superstores, it really depends on the particular customer that we're talking about. Some of them are more in the consolidation mode and driving more private label, and others have played that game. They did not deliver the results, so now they're more embracing branded products. and growing with us. So overall, there are puts and takes in that channel. And then the other channel that we're seeing good growth in is direct-to-consumer channel. We have an existing roughly $40 million business that is growing, and plus we're introducing new products and new categories that are primarily targeting direct-to-consumer channels to reach the consumer. And we recently issued a press release about TruSense, a line of air purifiers that we launched a couple of months ago. And those products are going primarily through direct-to-consumer channels. So overall, you know, we're seeing good growth in the majority of our channels and some consolidation in kind of more mature channels. And by the way, this is no different than the industry overall. There's all these channel shifts that are happening from specialty retail to mass retail, from retail in general to online, and it affects us like it affects everybody else.

Okay, great. Thanks for that. And I was wondering if you could just provide a little more color on the Brazilian tax reserve what is going on there? Is there the potential for more? Do you think that you've covered it with the recent one that you took in the quarter? Any additional detail there would be appreciated. Thanks.

Sure, Joe. Let me give you, actually, Neil will give you a short summary, but I would also encourage you to read both the 10-K and the 10Q, which will be published later today, which will give you a more robust description. But Neil will give you a quick high-level summary. Go ahead, Neil.

First of all, this dates back to our acquisition of the Meade CNOP business and taking tax depreciation within the business, which predated our ownership. And what we have fundamentally is... a dispute that we knew would take a long period of time to resolve. We just completed, for some of the years that are in dispute, the administrative court proceedings and now move to the judicial level. When you make that transition, there's a natural increase under Brazilian law of the potential penalty if you lose. Obviously, we are fighting it because that's not our anticipation. There is one more year. where we are still in the administrative courts, and therefore that size of the liability will change. And every year the liability does increase because we have to add interest to it, and it's tended to then be offset because FX has reduced it. So you get interest in FX every year, but there will be one more step up for one more year of the dispute that will occur as and when that transitions to the judicial level. And it's probably going to be at the judicial level for many, many years. So this is nothing that's going to have a result anytime soon.

Okay, great. Thanks for that. I appreciate it. Thanks, guys.

Thanks, Joe. Thank you. Our next question is from Brad Thomas from KeyBank Capital Markets. Your line is now open.

Hey, good morning, everybody. I got on a couple minutes late from another earnings call, so I apologize if this is been addressed, but I wanted to just talk a little bit more about the, um, the profitability in the North America business. Um, you know, was encouraged to see those results and, um, you know, hoping Boris, you could just share a little bit more about, um, you know, the opportunity to continue to enhance margins, um, and, uh, improve operating income dollars, you know, in the North America business.

Uh, yeah, in North America, you know, as we, as we, um, said over the last couple of quarters we saw fairly significant inflation last year, big cost increases, and we weren't able to adjust pricing on a timely basis due to the contractual commitments we have with customers. So we raised prices twice in North America in the last several months, once in October of 2018. And once in Q1, starting in January of 2019, you're seeing margin expansion and recovery of margin as a result of that. We expect incremental benefit just due to the pricing working its way through all of the customers, incremental benefit in Q2 as well. And right now we're seeing the inflation, the cost stay fairly muted in North America. So if things stay as is, we will not be needing to do another price increase until probably next year. I mean, obviously there is inflation, so I do anticipate a price increase next year. But we should be all set for 2019. In addition, in North America, we've taken incremental productivity and cost reduction actions. both in 2018 and in 2019, and the team's been implementing those, and as a result of that, we're seeing improved manufacturing efficiencies as well as lower SG&A in North America. So margins have expanded, profitability has improved, and given what I'm seeing from North America and the earlier back-to-school that we anticipate In North America, I think in the near term, the margins will continue to be very, very good in that region.

That's great. And so just to address the back-to-school sell-in, you alluded to some of the different channels you sell to and some of the changes that are happening, but I guess as you try to net it all out, Boris, you think this year's sell-in for back-to-school, you all are are share gainers across the industry and have a better sell-in than last year, or is it similar or worse? How should we think about it?

The sell-in should be better than last year. We anticipate roughly 2% growth from last year, so we do anticipate better sell-in. Share gain would depend on what the market does, so I can only tell you that in hindsight. I can't predict what the market's going to do, but I'm very happy with our sell-in position And we also said in both prepared remarks and on the call that we anticipate back-to-school shipments to be earlier this year than we did last year, which should benefit Q2.

Great. And then on the TruSense air purifiers, I thought the launch looked very well done. How do you think about the revenue opportunity for that category? and how much it might be able to contribute to growth?

It's a very big category. We estimate the category to be around $2 billion, and it's growing at about 13% per year. This is worldwide. Obviously, we just entered the market, so we're very small, but it has an opportunity to be a big category for us. We've just been selling the product on our own site and through Amazon for the last few weeks, and we're very, very happy. We also began to sell in Canada and in Japan in the last few weeks, and we have a plan to roll it out in Europe and the rest of the world in the second half of the year. So we have high hopes for it. The product is great. I think the team's done a great job with marketing and and merchandising it on our website. And we're excited, and we'll see what happens. But the opportunity is large. We just have to deliver.

It's very helpful. Thank you, Boris.

Thanks, Brad.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Boris Ellisman, Chairman, President, and CEO, for closing remarks.

Thank you, Gigi. Thank you, everybody, for joining us this morning. To summarize, we are pleased that the year got off to a good start, and we remain confident about our future and continue to position the company for growth and strong return for our shareholders. I look forward to speaking with you again after we report our second quarter earnings results. Have a nice day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.