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So, that strategy does represent a significant opportunity for our company. We added that one size, size (inaudible) a few years ago if you recall and we're now garnering about $80 million in sales from net initiatives. So and adding a few sizes, age 10 to 14. We can fully address that five year to 10 year old market a... |
So we're going to continue to focus on baby and grow that business, and we feel good about our share. But we're going to continue to make sure we strengthen that, and that we've got this incremental opportunity with Age Up which we feel good about as well. |
Great. That's helpful. Thanks so much. Good luck next quarter. |
Thank you. Your next question comes from Heather Balsky with Bank of America. |
Hi, good morning. Thank you for taking my question. |
Good morning. So, a key competitor has expressed the willingness to promote pretty aggressively to drive share. How is the promotional environment quarter-to-date? And how do you think about your ability to pass through price next year if the environment does get more promotional? |
Sure. I'd say that it continues to be promotional. I can't recall a time when it wasn't promotional, but I would say every good retailer is focused on inventory management, buying fewer units, trying to improve price realization, improve sell-through, sell less at the end of the season on the clearance rack. By and lar... |
So going forward, we're looking at what I would characterize as modest price increases and like-for-like product, modest price increases. And as a shared with you, just for context, every percentage point of cost increase for us represents less than $0.04 in the unit cost. So it's -- substantially everything we do, our... |
I would say that, that challenge would be comparable to what we saw during the cotton crisis back in 2011. And during the cotton crisis we improved our pricing about -- by about $0.50 a unit and we had very good top line growth that year and did a good job recovering from that spike in cotton prices. So I think we have... |
So that's our game plan for Spring '19. |
Thank you. And with the Toys "R" Us (inaudible), I guess no longer -- I guess in the back window and the growth coming from some of your lower margin wholesale partners, how do you think about your gross margin opportunities going forward? Are there offsets to that mix shift? |
Just to be clear. The reasons why Toys "R" Us was a very high margin customer for us. By and large, that was a baby business, and baby is one of the richest-margin product categories we have. So the other customers have a larger selection of the playwear, broader range of size ranges. So as you go up the -- the bigger ... |
And so there is a number of margin driving initiatives around inventory management. We're scaling up our new businesses with Skip Hop, Amazon, in Mexico. We have a more profitable model in China going forward. Our sourcing team is doing great job, exploring new markets to source our products going forward. |
And pricing's lever, its not the biggest lever, but as we see some of these inflationary pressures, we plan to take the prices up modestly. |
Thank you. Our next question comes from Laurent Vasilescu from Macquarie Group. |
Good morning, and thank you for taking my questions. I wanted to follow up on China, with regards to that $3.5 million charge. Can you dive into a little bit, into that -- the effects of the P&L with regards to revenues, gross margin and SG&A. Can we anticipate any other charges over the next few quarters? |
And then lastly, I forget if you called it out, but can you maybe parse out what -- how much sourcing comes out of China? And what that percentage rate can go down to if tariffs come into play? |
Sure. Let me let me comment on China, and then Rich will address the -- your other question with respect to China. So our -- we source less than 30% of our total units today from China. And China has been a great place to source the product. The execution -- when we look at the things that drive our decision in terms o... |
So against those four things that we look for, China has been an exceptionally good place to do business. That said, you know, we're -- we have this exposure to tariffs, thankfully we've been working with our suppliers over the past year, many of which, not only are based in China, but they're based in Cambodia and Vie... |
So they're helping us explore the possibility of shifting production from China, if necessary, to other parts of the world where they produce products. So we have the flexibility to move. That's the beauty of doing business in Asia over the past 20 years. We've developed these deep relationships with great suppliers th... |
And on the China charge, it was roughly $3.5 million. About $2.5 million was recorded in gross margin, that relates to additional inventory provisions that we took. The inventory for this market is unique to China, it's labeled for that market specifically, so we don't see a lot of opportunities to take it elsewhere in... |
And then about $1 million or so related to employee severance. As we're thinking about this new business model, we don't think that we're going to have the same staffing requirements that we've had with our own employees in China. So a couple of million related to inventory provisions and a $1 million related to severa... |
Okay. Very helpful. Thank you. And then in terms of the inventory growth of 14%, I think, it's called out in one of the slides that there was a timing shift of receipt. Could you quantify that number? And then, what's the anticipated inventory growth rate for the end of the fourth quarter? |
At the end of the year, I think, we said, we hope that inventories will be up 7% or 8% by year-end. We're making good progress toward that. That inventory was sort of front-end loaded to be at that 14% at the end of Q3. I would say, there are few specific programs in retail where they've chosen to bring in some program... |
If the year-end number is up 7% or 8%, the factors that I've mentioned are probably a few percentage points of that growth. |
Okay. Very helpful. And then maybe if I could squeeze one more last question. In terms of the double-digit comps, quarter-to-date, and then comparing that to the guidance of 4% for the fourth quarter? Can you maybe possibly remind us, what the monthly cadence was, high level for last year's fourth quarter? |
The last year fourth quarter, October, we had 1.6%, November was about 5.5% and December was about 5.5% as well. We finished up at 4.5% for the quarter. |
Okay. Very helpful. Thank you very much, and best of luck. |
Thank you. Our next question comes from Jim Chartier from Monness, Crespi & Hardt. |
Good morning. Thanks for taking my questions. I just wanted to understand the potential impact of the lower international sales. So, a couple of years ago you had a similar dynamic. So what percentage of your direct to consumer sales today come from overseas and how does that compare to 2015, 2016, the last time we saw... |
So, you're talking about international sales. So, about two-third will be -- go ahead. |
Sorry, international, full year direct-to-consumer business? |
So 2015, 2016, yeah, we saw a similar, much more dramatic change in exchange rates and you guys broke it out for us on the call. And I was just curious, what your exposure in your direct to consumer business is to international spending? |
At least, on -- eCommerce, it's around, its a little around 25%. That's the exposure. It was much higher years ago, but it has as demand -- domestic demand has grown faster than the international demand. So, it's around 25%. |
And in the quarter, Jim, it has been about 25% year-to-date in the quarter where international is down and (inaudible) about 10%. It represented about 21% of our -- of our business in Q3. |
Okay. And then, I believe again back in '15, '16, you saw an impact in some of your higher volume outlet stores or tourist destinations. Are those stores still open, and are you seeing any impact in those stores as well? |
With the announcement (ph) I saw, I think, the Florida stores are contemporary to large international customers. I think year-to-date, I think the performance was generally in line with the chain. It wasn't meaningfully different. |
Okay. And then on -- OK, sorry. And then on China, I'm not sure if you said this, but what is China tracking to in terms of a loss for 2018? |
And when do you expect to kind of finalize the new agreement and business model for China? |
We hope to finalize it in the balance for the year. We hope, early next year we've got a new model in place. |
Okay. Thanks. And best of luck. |
All right, Jim. Thanks very much. |
Thank you. Our next question comes from Jay Sole with UBS. |
Great. Thank you. Mike, I wanted to follow up on the -- some of the outlets discussion there. Can you maybe help us understand why the performance of some of the outlet stores you called out as weaker has been so much different from your other stores? What is that, that's unique about your business, that's created that... |
Well, in terms of our experience is that the outlets have underperformed the chain. And I think the last analysis I saw, I think in some cases we might be in some portion of 160 or so outlets depending on the brand. And just, the rule of thumb years ago, there's probably a 120, 125 really good outlet centers, Orlando, ... |
But, relative to that, really good centers were in considerably more of them. And these have been historically good profitable stores for us. But with the success that we've had with our own co-branded stores, opening those stores closer to the consumer and the success of our eCommerce business, there's fewer reasons t... |
And in years past when we would decide to exit, the property owner would make it very attractive for us to stay by significantly lowering the rents. But we're looking at where the arrow is pointing. And for these declining outlet centers, I think, it doesn't make sense to renew those leases. We're better off putting ou... |
The consumer loves the co-branded stores, loves the convenience of shopping these two brands in one convenient location. And so as these -- the outlet center, number of these outlets stores come up for renewal, we will be closing them. |
Got it. Okay. That's super interesting. And maybe Richard, if you can follow up on the retail segment adjusted operating margin in this quarter. I think you called out, eCommerce fulfillment expenses, spending on marketing and technology, is that possible to parse out, like what the bigger impact was to the margin of t... |
Well. I don't know that I'll parse them out in precise detail. I think those are the factors that affected the retail margin in the quarter as shipping costs, we are spending more on marketing that includes the new brand marketing campaign, a portion of that gets allocated to the retail segment and this fulfillment exp... |
I do think some of the variability in eCommerce is the source of some of the inefficiency that drove those costs higher. And we are testing this additional spending on expedited shipments for eCommerce orders. So all of which are weighing on the margins at this point. |
Okay. Got it. Thank you so much. |
Thank you. That concludes our time for the call. I'd now like to turn the call back over to Mr. Casey for closing remarks. |
Okay, thank you. Thank you all for joining us on the call this morning. I appreciate your thoughtful questions and your interest in our business. We look forward updating you again on our progress in February. Good-bye. |
The land has been purchased. Demolition work has started. But details on what a firm affiliated The Dollywood Co. has planned for the more than 14-acre site remain scarce. |
DESTIN � The land has been purchased. Demolition work has started. But details on what a firm affiliated The Dollywood Co. has planned for the more than 14-acre site remain scarce. |
World Choice Investments purchased four parcels on U.S. Highway 98 near Wal-Mart last December. |
Rumors have swirled for months that the site would be used for a new Dollywood-themed dinner theater. However, no development order for the project has been filed with Destin or Okaloosa County. |
�Since (the demolition permits were filed earlier this year), absolutely nothing has been submitted for us to look at,� said Ken Gallander, Destin�s community development director. �We�re waiting. I know they�re interested because we get inquiries about it, but I don�t know if they�re still thinking about someplace els... |
�They�re very interested in making it right, which is good,� Gallander added. |
Three of the parcels are within Destin�s city limits and the fourth is in unincorporated Okaloosa County. |
Elliot Kampert, the county�s director of growth management, said the project will require an agreement between the city and county to determine which government will be responsible for what facets of the project. However, that work cannot start until World Choice Investments submits more information. |
�Unfortunately, it�s not like Destin and the county can craft the interlocal agreement on their own and say, �OK, this is how it�s going to be,� because what they propose could affect what that interlocal agreement says,� Kampert said. |
County commissioners in February approved a 10-year exemption from tangible personal property taxes and real property taxes for an unnamed company looking to locate in Destin. The exemption will not take effect until the project is built and minimum hiring requirements are met. |
The deal simply was referred to as �Project UpUnder.� There was no mention of the site or World Choice Investments or any other potential developer. |
�Our policy is to not comment of active projects that may or may not be in the pipeline at this point,� said Nathan Sparks, director of the Okaloosa County Economic Development Council. �But certainly when and if we get to a point where there are announcements that can be made, we�ll make those announcements. |
�With any project, regardless of whether it�s a Dollywood project or a project in the manufacturing industry, there�s sensitivity about the release of information,� Sparks added. |
contacted the Rec Center and San Diego Police Department for information about the incident. |
A representative from the Rec Center, having not witnessed the event, said there were several versions of the story brought to their attention. Some parents report a man tried to take a four-year-old boy into the Rec Center men’s restroom. Other reports to Rec Center staff indicate one of two conflicting scenarios — 1)... |
Police did not respond by deadline to verify the suspect’s account of what happened. |
Rec Center staff advise visitors not approach or touch other people’s children, regardless of intention. The staff also said the man was questioned by police who ran his record, finding no prior criminal activity. |
Rec Center staff said they woud continue to observe the man should he return to the center. |
■ Possession of a controlled substance, 7500 block Girard Avenue, 4:05 p.m. |
■ Petty theft/larceny, 200 block Prospect Street, 5 p.m. |
■ Petty theft/larceny, 6800 block Neptune Place, 9 a.m. |
■ Residential burglary, 5200 block La Jolla Boulevard, 9 p.m. |
■ Vehicle break-in/theft, 700 block Genter Street, 10 p.m. |
■ Residential burglary, 1000 block Genter Street, 4:11 a.m. |
Consumers don't generally "trust" advertising -- but in certain advertising platforms combinations those trust numbers get better. |
The worst results, Nielsen says, are from "text ads on mobile phones," which have a 71% "Don't Trust Much/At All" score. Online banner ads hit a 64% number, which is also the same untrustworthy number for "ads on search engine results." |
By way of comparison, some traditional media does a bit better: "Ads on TV" score a 53% untrustworthy mark; with product placements on TV at a distrusting 60%. Ads in magazines are at 53%, while ads on radio score 58%. |
The best trusting results are drawn from general consumers' opinions and recommendations from "people I know" information -- where they hit a 70% and a 92% score, respectively, when it comes to "trust completely/somewhat." |
Nielsen says there is a remedy to some of the negative feelings about advertising when marketers combine social and paid advertising. Looking at ads with and without a social layer, it discovered that purchase intent is much higher when adding a social component. |
The report says: "Knowing that the advertised brand is liked by our friends builds trust." One example shows that social ads hit 55% better results in ad recall than non-social advertising results. |
Looking at branded company sites -- owned media -- Nielsen says that in one example a brand's Web site, along with paid digital advertising, drove sales lift three times higher then of paid digital ads alone. |
Nielsen recommends that marketers look at other combinations for positive results. |
It is not a violation of true conservative principles to recognize the American people want a certain level, an increasing level in fact, of public spending for all sorts of things (e.g., Social Security, national defense), many of which cannot be feasibly performed by lower levels of government. We then have a choice:... |
At some point debt matters a great deal — retarding growth and gobbling up revenue simply to service existing debt, for example. Alas, government is not like a household (or a business) and, therefore, some reasonable level of debt is acceptable. (Unlike the federal government, individuals don't have the full faith and... |
What about closing the gap between revenue and expenditures? We've seen for decades there is only so much cost cutting and pushing spending onto the states that is politically feasible. Democrats and Republicans alike want a rather large, active government. We can try to increase the growth rate by smarter policies (e.... |
Republicans made matters worse, reducing revenue by selling the same supply-side chestnut to the American people when they voted for tax cuts. It'll pay for itself! It'll permanently hike growth! No, and no. It dramatically increased the debt in exchange for at most a temporary bump in growth, already dissipating befor... |
Rep. Alexandria Ocasio-Cortez, D-N.Y., touched off a debate by suggesting a top marginal rate of 70 percent; Sen. Elizabeth Warren. D-Mass., wants a super-wealth tax to add on a 2 percent tax on Americans with assets above $50 million and 3 percent on those with assets above $1 billion. Neither is a great idea, and not... |
With 20 or so Democrats heading for the presidential primary, maybe it is time to have a reasoned discussion on how much more revenue we think is reasonably required (at least until the baby boomer retirement bubble deflates) and the best way to raise it. |
As to the latter, a number of constructive and science-believing conservatives have recommended a carbon tax, which serves the dual purpose of raising revenue and slowing climate change. Others want to go to a consumption tax (e.g. VAT tax). |
You'll find a lot of economists suggesting something more sweeping, but ultimately something that rewards work, which conservatives generally like. |
Former car czar Steven Rattner, writing in The New York Times, is among those suggesting "increasing the tax rate on capital gains and dividends and closing loopholes." In other words, we should be diminishing or eliminating the difference in tax rates that apply to wages and that apply to investment income. Rattner ex... |
"(W)hile raising those tax rates closer to those on ordinary income would make the system fairer, other changes would be required to prevent owners of appreciated assets from avoiding their tax obligations. For example, the United States should eliminate the provision that forgives unpaid capital gains taxes on assets ... |
"And there are many loopholes that could be closed in the name of greater equity. In 2016, the Obama administration provided a helpful list of candidates: They range from jettisoning the special deductions and credits that producers of fossil fuels enjoy to eliminating the notorious carried interest provision, which al... |
In fact, it's time to eliminate energy subsidies on all forms of energy, something Sen. Tim Kaine, D-Va., has recommended and something true free-marketers should appreciate. |
In any event, there is no shortage of ideas on the tax front. The rest of the Democratic field, I think, can come up with better ideas than the easy, splashy fix of simply raising the top marginal tax rate. They should start with the basics: How much more revenue do we need, and what's the most efficient way to do that... |
— Jennifer Rubin writes reported opinion for The Washington Post. Follow her on Twitter @JRubinBlogger. |
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