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AT Cross Co. (ATX)

Q4 2007 Earnings Call

February 20, 2008 4:30 pm ET


David Griffith - Integrated Corporate Relations

Dave Whalen - President and CEO

Kevin Mahoney - CFO


David Leibowitz - Burnham

Eric Marshall - Hodges Capital Management

Patrick Flavin - Flavin Blake & Company



Good day, everyone, and welcome to the AT Cross Company fourth-quarter 2007 Earnings Call.

It is now my pleasure to turn the floor over to Mr. David Griffith of Integrated Corporate Relations. Please go ahead, sir.

David Griffith

Thanks [Jason]. Before we begin, I'd like to take a moment to read the Safe Harbor Statement. Statements contained on this call that are not historical facts, are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the success of the company's new writing instruments, products and brand extensions; the continued growth of direct-to-consumer initiatives; the continued impact of the company's shop-in-shop and new display initiatives; the continued growth of Costa Del Mar and the brand's ability to attract new demographics, the success of the company's continuing efforts to reduce costs by optimizing its China facility and tightening the company's supply chain related to that facility.

In addition, words such as "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, consumers' reaction to the company's new and existing products, including those of Costa Del Mar; consumers' reaction to direct-to-consumer and the company's display initiatives; and the ability of Costa Del Mar to continue attracting customers.

Additional discussions of factors that could cause actual results to differ materially from Management's expectations are contained in the company's filings under the Securities Exchange Act of 1934, including, but not limited to, the annual report on 10-K for the year ended December 30th, 2006, and other filings made periodically by the company. The company undertakes no obligation to update this forward-looking information.

And now, I'd like to turn the call over to Dave Whalen, President and CEO. Please go ahead, Dave.

Dave Whalen

Thanks. David. Good afternoon and thank you for joining us. With me on the line today is Kevin Mahoney, our Chief Financial Officer. We had a very good 2007 and we are pleased with our financial results. We believe that the results clearly show that 2007 was a year that proved that AT Cross has moved beyond its transitional period. Importantly, we are now poised to deliver consistent revenue growth, margin improvement and earnings growth for the foreseeable future. Here are some highlights form the past year. Revenue grew 9% to $152 million. Both business segments grew. The Cross Optical Group' lead our performance with 34% growth and the Cross Accessory Division also increased, improving 3%.

Earnings more than doubled from $0.22 a share in 2006 to $0.45 a share. Gross margin on both businesses grew, particularly in the Cross Accessory Division, which saw margin's improve more than four full percentage points to 55.7%. Clearly the move of our quality writing instrument, manufacturing operations in Asia is working well.

Both businesses were also successful in launching a critical mass of new products. The Cross Accessory Division launched $16 million of new Cross branded products, including writing instruments, leather goods and timepieces. The Cross Optical Group generated $3.3 million of revenue from new products in the year, to help build the Costa Del Mar brand.

Finally, we further improved our balance sheet, as our net cash position grew $6.4 million as a result of the timely sale leaseback of our Rhode Island facility last March. We expect to build on this positive momentum in 2008.

We are focused on four strategies that we believe are critical to maximizing shareholder value. They are, grow the Cross brand by continuing to provide the market with strong new product in our core writing instrument category and by developing compelling new Cross brand extensions.

Two, improve our profitability by continuing to lower our quality writing instrument cost structure by fully optimizing the state-of-the-art manufacturing facility we have created in China and the supply chain it anchors.

Three, grow the Costa Del Mar polarized sunglass business by region, gender and demographics and unlock the benefits of scale associated with becoming a larger competitor in the premium performance sunglass market.

And finally, utilize our strong balance sheet and increasing cash flow to make acquisitions that will strength the Cross brand position in the accessories market or grow our Optical Groups position in the premium sunglass market.

In 2007, we made progress in each of these strategies and will build upon that progress as we head into the new fiscal year. First we are growing Cross brand. In 2007, Cross branded revenue grew 3%, as we continued to innovate and extend the brand into new categories. We delivered $16 million of new products to the market and further penetrated new categories, such as leather goods, timepieces and reading glasses.

Product is part of the equation, but so is presentation. To leverage presentation we invested in the brand through better fixtures with our customer retail side, 1,200 were refurbished or replaced last year, and our own shop-in-shop initiative, which now includes 79 Cross shops around the globe. These fixtures helped communicate our brand and built a more direct relationship with consumers.

Finally, this business benefited from a stronger direct relationship with consumers, by our Cross.com website, which now interacts with over 2 million visitors per year and saw a substantial increase in revenues. And also, through our catalog program, which was mailed three times last year to nearly 1 million homes.

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