Q3 2007 BARE ESCENTUALS INC Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day and welcome to the Bare Escentuals third quarter fiscal 2007 conference call. Today's call is being recorded. For opening remarks and introductions I would now like to turn the call over to Mr. Andrew Greenebaum of Integrated Corporate Relations. Please go ahead.

ANDREW GRENNBAUM, INTEGRATED CORPORATE RELATIONS, BARE ESCENTUALS INC: Welcome to Bare Escentuals' third quarter fiscal 2007 conference call. On the call today from the Company are Leslie Blodgett, Chief Executive Officer, and Myles McCormick, Chief Financial Officer and Chief Operating Officer. By now, everyone should have had access to the third quarter fiscal 2007 earnings release which went out today at approximately 4:00 p.m. Eastern Time. If you have not received your release, it is available on the investor relations portion of Bare Escentuals' Website at www.BareEscentuals.com by checking on the "about Bare Escentuals" tab. The call is being webcast and the replay will be available on the Company's Website for three months.

Before we begin we'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, therefore, undue reliance should not be placed on them. We refer all of you to the risk factors contained in Bare Escentuals' most recent Form 10-K for the year-ended December 31, 2006 and the Form 10-Q for quarter ended July 1, 2007, for more detailed discussions of those factors that could cause actual results to differ materially of those projected in any forward-looking statements. Bare Escentuals assumes no obligation or revise any forward-looking projections that may be made in today's release or call. With that, I'd like to turn the call over to Leslie Blodgett.

LESLIE BLODGETT, CEO, BARE ESCENTUALS INC: Thank you, Andrew. Good afternoon everyone, and thanks for joining us today. The format of today's call will include my brief business overview and highlights of the quarter, then Myles will give you additional detail on our operating and financial results as well as our preliminary guidance for 2008 before we open the call for your questions. Bare Escentuals completed its IPO a little over a year ago and we thought that this would be an appropriate time to assess our progress and articulate our plans for the future. I'm delighted to say that it's been an incredibly exciting and high growth year. Key accomplishments since our IPO include the following. Expanded our points of distribution 48% with new premium wholesale and retail channels domestically, including Nordstrom, Macy's and Sephora inside JCPenney. Enhanced our product assortment with new offerings in the face, eye, lip and skin care categories, including our 100% all natural lip sticks and our Prime Time preservative premakeup primer. Continue to develop strong customer relationships through direct interaction with our passionate users and solid execution with our partners such as QVC, Sephora and Ulta and made significant progress in building the business and infrastructure to support our future growth including the acquisition of our U.K. distributor. Opening a new distribution facility, and key hires such as Karen Barner, and Jim Taschetta. At the same we delivered strong financial results.

Our third quarter sales were up 29% to 126.6 million, and net income was up 131% to 20.5 million. Our third quarter performance reflects our continued progress in meeting the growing consumer demand for our products world. We're extremely proud of our accomplishments but our next phase of growth has been top of mind for us. Over the past several months we have deepened our understanding of brand awareness, brand loyalty, and shopping preferences for both users and nonusers of Bare Escentuals through our ongoing consumer research. At the same time, we've been working internally to develop our long-term domestic distribution strategy and we've reached out to outside advisors to validate our approach. This was extremely helpful exercise that resulted in much more detailed and specific view of the considerable growth opportunities for Bare Escentuals going forward. With respect to the consumer research, let me touch on a few of the key highlights. First, our consumers are fiercely loyal to the BE brand which reinforces the feedback that I've received from our passionate BE community. In fact, over 93% of women who use our products are not likely to consider switching brands over the next 12 months. We're pleased with that high degree of loyalty has remained very consistent as we rapidly expanded our consumer base.

Second, Bare Escentuals has strong brand awareness, approximately 70% of cosmetic users are aware of Bare Escentuals which validates the approach we've taken in building brand awareness and product education to various media and retail channels. This also highlights an important opportunity as our brand awareness among consumers continues to exceed our trial rate. We, therefore, see a significant opportunity to expand distribution enough to reach a large population of women that don't have ready access to BE. So what are the implications for our business going forward? One takeaway is that we need to stay focussed on our core messaging and product education in order to continue to generate awareness and educate consumers about Bare Escentuals and the benefits of mineral makeup. The great news is that our research confirms that our addressable market opportunity remains substantial. Of the 85% of cosmetic users who have yet to try mineral makeup, roughly 60% of them indicate they are somewhat likely or extremely likely to try it over the next 12 months and the brand they indicate they are most likely to try is Bare Minerals.

The second take away is that we need to continue to expand our points of presence in order to make our products more accessible for trial. When we asked women who aren't using Bare Escentuals how they first became introduced to our current foundation brand the Number 1 response was that they saw it in a store. Expanding our physical distribution with our strategic retail partners as an important tool to drive awareness of our brand that complements and enhances our use of media. By growing our points of distribution, we reach women who have yet to try mineral makeup. Ultimately, this will be a key to closing the gap between consumers' awareness of our products and their ability to experience it firsthand which leads us to our domestic distribution strategy.

As of the end of the third quarter, we had a presence in 515 points of distribution domestically. We know from both our customer research as well as competitive benchmarking of other prestige brands that our …