TheStreet: In the last quarter, sales increased 41% from last year to $23.2 million, which was well above the lone analyst estimate...
Crossman: Well, we've been able to manage something that pretty much no other denim company has been able to accomplish on the wholesale side, which is get into other categories. For the longest time, we'd beat our head up against the wall trying to get into the "collection" and the "lifestyle brand." We don't hold that power. Retailers would say the same thing over and over. "Unless you come up with something really special, we're not going to put it into our stores." After three years of hearing the same thing, we now have our tops division or microbrand, as we call it.
We had to approach it a different way with the retailers. We showed up to our first show with 70 different patterns, so everyone was able to find five or six woven shirts to put together a nice capsule in their stores on a monthly basis. That shows that when you really attack it as its own separate entity, it's not an afterthought. That's how we gained our success with these microbrands. We've done that not only with our woven shirts, but with our knit tops and non-denim bottoms, which should be really successful.
When you look at the logos, we're not trying to drive the Joe's component of it, but instead its own brand with its own identity. The evidence, or the proof, is in the pudding based on 20% of our sales in the last quarter coming from that in the wholesale channel.
TheStreet: Right. So in the last quarter, 20% of sales came from non-denim products. To me, that sounds like the biggest growth potential for the company going forward. Is there a higher margin for these non-denim products?
Crossman: We should easily be able to get those margins up to where the denim is, but we're not at that point yet. The problem is that we're putting these microbrands together in Los Angeles. Price sourcing is probably the best way to put it. You really have to develop relationships with factories overseas. Even with our knit tops we're doing a lot of production in Los Angeles, and the margins are lower. As we grow the size of the business, we're definitely going to bring that in a bigger way over to China, developing relationships with factories. It's an opportunity, but right now they're carrying slightly lower margins. I think I've said in the past that it's five to seven points lower. But we'll easily be able to make that up as we make that transition.