Q3 2019 Earnings Call
Greetings and welcome to the into performs third quarter 2019 conference call at this time because concerning listen only mode.
I would answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star Zero Wonder telephone keypad.
As a reminder, this conference is being recorded.
Pleasure to trigger colorectal Russell Greenberg. Please go ahead Sir.
Thank you.
Hi, Good morning, and welcome to our 2019 third quarter Conference call.
We will again proceed without wish they had to format.
After I review, our financial performance Sharma dollar, our chairman and CEO will provide an overview of our business and share. Some future plants. Then we will take your questions.
Before proceeding further I want to remind listeners that this conference call may contain forward looking statements, which involve known and unknown risks uncertainties and other factors that may cause actual results to be materially different from projected results.
These factors include but not limited to the risks and uncertainties discussed under the heading forward looking statements and risk factors and <unk> annual report on Form 10-K , and the reports we file from time to time with the Securities and Exchange Commission.
We do not intend to undertake no duty to update the information discussed.
When we refer to our European based operations, we are primarily talking about sales of prestige fragrance products conducted through our 73% own French subsidiary Interparfums et cetera.
When we discuss our United States based operations, we are primarily referring to sales of prestige fragrance products conducted through our wholly own domestic subsidiaries.
The average dollar Euro exchange rate for the 2019 third quarter.
It's 1.11 compared to 1.16 in the third quarter of 2018.
For the nine months ended September Thirtyth, 2019, and 2018.
The dollar Euro exchange rate was 1.12 and 1.19, respectively.
As a reminder, a strong U.S. dollar has a negative impact on our net sales, but a positive effect on our gross profit margin.
Because over 45% of net sales of our European operations are denominated in dollars.
Almost all costs within our European operations are incurred in euro.
With regard to the current third quarter as compared to last years.
Net sales were 191.2 million up 7.9% from 177.2 million.
At comparable foreign currency exchange rates net sales increased 9.7%.
Net sales by European based operations Rose, 4.2%.
To 143.6 million.
From 137.8 million.
Net sales by U.S. based operations rose 20.7%.
To 47 point Sixmillion from 39.4 million.
[noise] gross margin was 59.8% compared to 61.6%.
<unk> expenses as a percentage of net sales.
Worth 40.7 per cent compared to 41.9%.
Operating income increased 4.8% took 36.6 million from 35 million.
And operating margin was 19.2% compared to 19.7%.
Our effective income tax rate came in at 27.4% as compared to last years third quarter at 28.6%.
Net income attributable to into performs Inc. increased 10.1% to 20.8 million.
From 18.9 million.
And net income per diluted share rose, 10% to 66 cents from 60 cents.
The us through the first nine months of 2019 net sales increased 7.5% to 535.7 million as compared to 498 point threemillion for the corresponding period of the prior year.
At comparable foreign currency exchange rates net sales increased 10.2%.
For the nine month Curry.
Net income attributable to into performs Inc. rose to 52.1 million and.
An increase of 13.8% compared to 45.7 million in the same period last year, while net income per diluted share.
Was up 13.1% to 1.64 through $1.64 from $1.45.
We have reviewed brand highlights in our press release and in the 10-Q that we filed yesterday, so I will move on to discuss some profitability inputs.
As you probably know our third quarter, its historically, our strongest quarter for sales due to holiday season shipments.
However, more often than not our consolidated gross margin contracts a little bit in the third quarter due to the large proportion of holiday gift sets that are in our sales mix.
For European operations gross profit margin was 62.8% in the current third quarter compared to last year, 64.9%.
The cost of sales of our new Montblanc explore product line is higher than typical.
And those costs offset much of the gross margin benefit that we saw because of the stronger dollar.
For U.S. operations gross margin was 51% as compared to 49.9% in last year's third quarter with the increase primarily attributable to greater sales of prestige fragrances under license.
As we reported in prior quarters operating leverage is boosting our profitability.
The third quarter is no exception as a 4.9% increase in S.G. in a expenses accompanied a 7.9% increase in net sales.
In the third quarter it was European operations that reap the benefit from SGN, a operating leverage as its net sales increased 4.2%.
While SGN a expenses rose only three tenths of 1%.
So when the current quarter SGN a for our European operations came in at 42.1% of net sales as compared to 43.8% in last year's third quarter.
With regard to U.S. operations SGN, a expense rose, 25% from last year's third quarter and represented 36.3% of net sales up from 35.1% in last year's third quarter.
The increase is directly associated with greater sales of licensed products, although the increase in SGN a expense outpaced sales growth in the third quarter.
Through the third through the first nine months S.G. day was 40.0% of that sales compared to 40.9% for that corresponding period in 2018.
Promotion and advertising included in ESG index, a expense aggregated 28.7 million or 17.3% of net sales as compared to 27.9 billion.
Or 17.5% of net sales in last year's third quarter.
As usual you can expect a big fourth quarter spend on promotion and advertising programs. So that on a full year basis promotion and advertising should aggregate approximately 21% of 2019 net sales as has been the case in the past two years.
Our financial position remains extremely strong we close the third quarter with working capital of 375 million, including approximately 192 million in cash and cash equivalents as well as short term investments.
Working capital of ratio of over 3.2 to one and just 10.6 million of long term debt.
Our solid balance sheet and favorable outlook will once again the reasons why our board soft fit.
Two again increased the dividend rate this time by 20%.
Starting in 2020, our quarterly dividend will increase to 33 cents, bringing the annual rate to $1.32 cents.
Per share.
We also raised our earnings guidance for 2019 to $1.90 cents per diluted share from our previous target of $1.88 cents. This.
This is the result of improved controls over expenses in general and leveraging sales gains over fixed expenses.
As we reported yesterday due to the stronger dollar this year versus last year 2019, net sales are expected to come in as previously forecast at approximately 712 million.
Guidance assumes the dollar remains at current levels.
And finally I just want you to know that we will be releasing our initial 2020 guidance on Wednesday November 20-F, after the close of the market.
John Please continue.
Thank you Ross and good morning to you all.
Before moving on to a well news and future plans I just want to review the status of our markets one by one huh.
[noise] North America.
I'll just market remains exceptionally strong we've yet to date says up 15.9% [noise].
West Western Europe is our second largest and he does been doing well too and this fall VCSEL says up 4.8%.
You know what Phil Scoffed <unk> conference call back in May I pointed out that we're looking for improvement in that well Asian business as the year unfolds and I were focused was right.
As compared to last year.
Yes, well still says rose 8% following up on the seventh or Psencik unquote still says gain so as a result, you have to date Asian says Oh slightly ahead of last year.
Let me, though this is proving to be it also is very good markets for us Weve, a nine month says up 25% and eastern Europe had a respectable gain of 4.2% and since although the first nine month of last year.
[noise], how business has been able to withstand the challenges of what that tie in global market Revenging from brick sits in the UK.
Some with all these us those around the world some tariffs.
Weve, China, some riots in Hong Kong and some conflict in the Middle East.
[noise] not moving on to recent developments, we have finalized I will ensure plans for the Kate Spade Bronson for which we signed a license agreement in June we have decided to retain too popular legacy sense Lifecell obsolete and work on there and we will take over they'll put the.
Auction and distribution in April .
And then tail in human studies into works Weve, a dispute plan for the fall 2020.
North America is of a bronze primary market.
Hi, though the Kate Spade run has successfully expanded its international presence through new stores openings and does gain notable traction in China, though the significant area of opportunity father Brown.
Not sure <unk>, Oh, well distribution that Delta you again promotional activities, we follow the direction of the run until the excellent leadership of management.
[noise] back in September well, we announced a bit we have extended our licensing arrangement, we oh scalable hunt abroad.
I'd have to dozens 41.
And with an additional five year extension option, which could that goes to two dozen than 36.
I do go they'll distribution of the brands frequency portfolio in 2017 and season. Since then we have added new sense for men unfolding.
Coffee don't in our ability to build this business fill the.
We know looming deadlines and the Super Bowl, although licensing, but not to Scotland, though well not in a much better position to map out loans to growth strategy for this I couldn't <unk> Brent.
[noise] as we mentioned in that will release yesterday, montblanc and coach will each introduce new month sent in the system highlights of two dozen 20 <unk> and.
And Jimmy Choo, we do the same in the second half of two dozen 20.
Oh, well also reviving sleeping beauty equaled <unk> by a whole shots.
As we previously reported well disputing Jimmy Choo net bullish and these steep collections in a limited number of high end distribution markets in the first half of two dozen 20.
The only new men's program in the work you spoke English us.
Lumber whole shas, which launched in the first half of 2020.
In the coming you most of what you would see for our smaller brands all extension and limited edition Hi, though we do have a week in humans Sunday did rooting for <unk> the second half.
In 2020, well coffee done to the good so we'd be in the dumped five brands by says you know its portfolio it might even reached number three.
[noise] boosting the says of legacy figure once we are launching a blockbuster frequents below.
Called but have you done but [noise].
It's an older twitlit, an older perfume and vis vis two fragrance would the beautiful the guest run domestically in the spring.
Oh, two dozen 20.
But what you might may find of interest is international distribution plan. They love it up the fumed <unk> aimed at the U.S., Canada, and Europe and believe it or do Twitlit stuck it did fall selling Asia, Russia and Scandinavia.
Oh, well also coffee done that this spring launch of the new frequency and that's true.
Yes, we will do you get that he's the full run citizen schools and the screen stuff into subsequent to off two dozen twins.
Oh, it's got the hunt below some <unk> will come a new members. We don't have been <unk> I sense also in the summer school still have to doesn't we twin.
[noise] very long awaited the beauty of I will Miss descent collection fall Grasso <unk>.
So we are dealing how roads beginning in March 2020, Weve Cilic TV luxury distribution plans for the full two dozen talent.
Brad extensions I mean, that's our plan salt done even next year. We have also go to blood extension dual console about Colombia, So how do you still.
Our system direct to consumer will equal mess until price did you do this year in symptom Bill we activation of the <unk> website and the so scent called Heaven I.
I just taking a promotion did not stopped until October though so it is too early to evaluate the potential of this business.
There's been some does associated with the launch including loan features story invokes Oakdale built pretty sure.
Well <unk> get fully we've been next Lilly Eldridge scent called summit before yearend and also exploring put CBT focus mid seeks.
Well two dozen twins.
[noise] was no guarantees that we continue to look into <unk> and lodging I well Brent books for you. We've got the finance was transferred onto the ball to drive an due until 10 transactions with the compatible with our business plan. It was I will business model.
[noise] so before moving on to your questions. Let me be <unk>. The first one to wish you all happy holiday season, and the very best of a new Gil I also want to stuff will be a stop on the Davidson beauty and wellness New York bus to themselves. The December 12.
And we hope to see some of you upped our offices at the time.
Now operator, you can open the floor for questions.
Thank you will now be conducting a question answer session. If you like any place in the question could you. Please press star 100 telephone keypad, a confirmation told will indicate your line is in the question Q you May press star to if you'd like to remember question from the Q for participants using speaker equipment, they may be necessary to pick up or handset before pressing star.
One one moment, please probably poll for questions. Our first question today is coming from Joe Altobello from Raymond James Your line is now alive.
Hey, guys good morning Joel.
Question I wanted to ask about the guide you raised yeah kept sales on things and it does imply you know flat to down slightly in the fourth quarter I know, you're comping against a pretty pretty tough base period, but yeah. The FX drag should be last in the fourth quarter than it has been in previous quarters I understand.
That the dynamic.
In terms of the fourth quarter year over year implied guide.
Yeah again, a lot of it what what the guidance is really implying is pretty much a flat period for sales a in absolute dollars whatever the exchange rate fluctuations.
As a comparison of 1.14 last year versus 1.111 0.10 this year.
So from an earnings standpoint, we're looking at probably plus four or 5%. So.
[laughter].
Yeah.
It's a it's a little bit better than it that it appears from a in a constant dollar basis.
And also just kill lets keep in mind that throughout the entire year. You know we've been we've been growing at a little bit of a better percentage third quarter, especially came down a little bit higher on the sell side than we expected.
So I think that we're just trying to be a reasonable for the fourth quarter expectations.
Okay. Good because the reason I ask that you look at the third quarter sales were up 8% on a reported basis and the exchange rate drag was about two point they should be less than two points in the fourth quarter, given where the euro and so that's why I'm sorry, I understand what are they going on the fourth quarter last year, where they're more launches in the fourth quarters last year.
Well, if you had a it for the for the European operations, you've been growing this year I've been through the first through the nine months somewhere around three or 4%, a and that's really getting hit significantly as a result of the exchange rate.
The growth and on the U.S. side has been a lot higher but again, you've got a very difficult comp in the fourth quarter as of course, we did have gas for the full year for for the full year this year, but only a nine months last year.
Okay, and then secondly, if we think about 2020, I know well that guidance in a couple of weeks, but.
Look at the you know the launch schedule. We've got planned for next year. It kinda compared to this year. It seems like there's a lot more and bigger launches next year block to me too.
Et cetera code.
I would guess growing pretty considerably that's here it sounds like you're implying about 100 million or more revenue forgot. Your so help us understand how you're thinking about the launch schedule for 2020 versus 20.
I I can try to instill a jewel.
You do next year, we're gonna have a launch for more blown, but it's a woman's it sounds from law.
But the big launch from more blown was this year, we explore oil which is a woman which is a men's scent. So.
The increase in says of more blowing two dozen 19, you'd be doing percentage, but what we're going to get from the balloon sent in 2020.
Got you will have an important launch two dozen 20 and <unk> will increase the.
The who sends a of coach Jimmy Choo, we have something happening on swing. The second house. So yes, we are very small launches into doesn't 21 days in 2019 for all the U.S. side of the business well launch well and this me well launch for I guess.
Yes, as I said, we'd be Oh, I don't want to you mentioned $100 million, who I don't think we're gonna be of at high but different people going to be gets would become as I said number five number full maybe number three.
On the new companies, who gets you going at the very first they visit big demands for <unk> I guess products in a in Europe .
D. menthol, who gets booked in the middle East, we we stopped Oh, China next to a focus will not in China, yet so we have.
We have a lot of principal two dozen 20 more on November 20, we will release of the guidance.
I think too.
No companies.
You can get into video <unk>.
Okay. Thank God bless you won't let something no I think you covered it I think that Oh I'd like to leave the rest of it for the announcement on the Twentyth yeah.
Okay I got your packager.
Thank you. My next question today is coming from Linda Bolton Weiser from D.A. Davidson. Your line is now live.
[noise] [noise] hi.
So can you just on the launch it there are several major things as you said for 2020 I believe one of them maybe the mom block explore in 2019 was supposed to have been global all at once and then it kind of ended up spreading out over a couple of corridors. How will those launches go in 2020 or any of them going to be.
Global simultaneous are they going to be spread over a couple of quarters can you give us <unk> yeah. Yeah. It's a very thank you didn't have always the yet for 2020, you're going to have the launches will be we'd be phased in a in different caught us a it's become <unk>. So you should expect.
For instance, or the mobile all the woman's when stuffed into the film stars in the in 30% of the countries, where we are and will roll out to the rest of the will something full Jimmy Choo.
The second half a century something for guess.
In the school, so think about it a a more has a a gradual rollout to defend a one shot.
Thank you and then can I also ask you haven't really mentioned much at all in your press release at least about the new really Aldridge model fragrance that was launched online can you talk about how that was I think that was September crack and what do you know we are I mentioned I of course, I can't I can talk about it.
But the you remember we discussed this and have a andover less to we look at he does a that's an experiment does a lab, we need to understand but if we if we can create a business model to since frequency something done it.
The steps the results of the <unk> drayage comparing to go to the money, but you have a spot.
He's a little will fund our expectation.
We have [noise].
I've done some advertising the cost of acquiring because that really is quite a high but again, we had it wasn't <unk> projections to to lose some money on b. So I'm just program.
What would be thinking going forward, either maybe to look for the balance all models all actors Oh singles that ties.
The different traction event. He has reached in the sense that we need to have a very large fund based potential customers. So we are the whole team is is analyzing all the numbers so didn't seem to be the only but as as we said before well that's interested.
And Jim up said going the amount of the Prophy don't know sues between.
Small oh, the the creation of <unk> of the model, but 12 interested to two two Luca.
Yeah deal and the only thing I would add to that is we're also evaluating but correct product offerings for the fan base that where there were targeting a so it is a a question of of really building an entire model around this potential internet sales.
Okay, and then can I just ask.
Ken.
The Jimmy Choo Lipstick launch I think he's had a.
Pretty exclusive distribution I would imagine, but what are the some of the specific retailers that well carry that.
[noise] went to view as usual suspects Oh that Oh left off now so all I will be button still spot now that we have a in the world.
The fingers and it would be multi buttons tools and the event Oh Chen still also Oh for <unk> launch we are looking for people who are going to give us some space because we have.
In the especial the gondola to hold all our well beauty products, which he's only been then.
Uh huh.
So let me come to you for now.
Nordstrom Nordstrom in the U.S., perhaps.
No no.
Backs.
It is difficult for me to two to discuss a well well have finalizing the.
The retail this fall launch so difficult for me to today, even though.
But but no nothing nothing good nothing between the surprise you.
Okay. Thank you very much.
Thank you.
Thank you. My next question today is coming from Wendy Nicholson from Citigroup. Your line is my life.
Hi, good morning.
You know first had a quick follow up D. Lilly Aldredge platform. The idea ultimately over time is to have other or something like 30 is our models or influencers involved right. It's just that right now it's just I'll only aldrich product is that right, but but but in terms of timing on when you might introduce.
The next person I I assume that's still a ways off is that fair to say.
Gross.
Yeah I guess this are they the idea here is you we utilize all the Aldrich as the first test. This was the first talent, if you will and the whether or not and how quickly we move forward with additional talent will really be after the full analysis.
Of this particular this particular model that we're working with and whether or not the the whole the whole business model behind it is something that is worth our while for the future. So all of this is really still being analyzed.
And that will really determine.
How quickly or whether or not we're going to continue in the future.
Got it got it that makes that.
Well I guess, what's your strategy or approach just selling on Amazon is.
Cody This morning, when they reported earnings on their call said that Amazon had grown dramatically with ending up being an attractive channel and obviously they have a different product assortment in different price points, but I'm just wondering what your updated view on selling on Amazon It.
But well sitting on Amazon, but today, it's not a major account to a we'd we we look at it carefully the idea is not to compete squeeze a with the older web sites of I will read the little I'm talking about misses that comes if another comics at all.
So we are well sitting and we see a says increase zynga kicked off took off though but we will the real money just get food.
Got it and then I just had a couple of other quick ones Robin. Thank you pick up on give us any directional guidance for how big do you expect Kate spade it'd be kind of I think I know you're going to give guidance in a couple weeks, but just directionally, how big how how how important is Kate spade gonna be next year.
We we really have not we've just finalized our plans where we are going to we are going to continue with two of their pre existing lines.
Oh, which all sales will start sometime in the in April and then we are really gearing up for our first launch which will happen or later on in 2020.
Got it fair enough and then my very last question I promise you guys are so good kind of reading the marketplace on and obviously you know.
I wish category generally have fan.
You know sort of so contested and ultra results have been disappointing in all of that but could you just maybe comment at a high level.
I mean your growth is terrific and is it fair to say you don't see anything sort of changing in terms of the end demand to consumer demand interesting wearing fragrance et cetera et cetera, you know all full steam ahead with the exception or something like Hong Kong, which is a temporary slowdown, but big high level globally the category still healthy.
Thanks.
I can try Oh, I can try or to answer. These questions. Thank you for complement the whose appreciated but oh well my point of view and they travel a mini a bus overwhelm the that I go to stalls I talked to customers.
Business. He does this is in good shape fragrance business isn't very good shape and prestige fragrances businesses, even in a better shape. So.
The goal will be to push and two to two Luke full products, but ER or.
Hi, Rhonda.
More of a little bit more expensive than the than what the market. Today. So we are well coffee done in the middle East we're confident in Europe .
Visa customer that he's looking for new products so from.
From a Jimmy Choo.
Luxury affordable.
<unk> hundred dollars pricepoint to ease of what we <unk>, how should they seem to have a target a price on target customers and the even in the in China, well well, we have if we teamed up with full launch of a new fragrance, while on a suite.
We are.
Well using all the marketing techniques of launches in the China, We've a T mall or <unk> and <unk> and the results Oh, great. We see a customer that was responding.
Very clearly a two of our type of products. So I'm quite a optimistically confident or Hong Kong was a a problem is a problem. Our says have been done the of course over less remote but I was looking at a oh well said since the beginning of it will still up.
You know and we we expect I will business two or even the end of it you have to still be up.
You know.
Korea is in good shape, the duty free ease of doing very well.
No I'm quite optimistic.
Sure I think that's very helpful. Thank you so much that you're too.
Thank you. My next question is coming from Steph Wissink from Jefferies. Your line is now live.
Thanks, Good morning, everyone.
A couple of care clarification question that because the first is on some of the make up initiatives. There cosmetics initiative can you talk a little bit about the door thing the order flow and any sort of distinct inventory considerations, we should be mindful of I know, it's a small business, but other growth for you or how should we think about the supply network relative to your core business and.
Then secondly, you're talking about that you're thinking about the Jimmy Choo Youre talking about the Jimmy Choo cosmetics.
Yes that that cosmetic strategy and if it if it is going to be deployed for any other brands and that would be helpful to understand as well and not just really quickly on the gross margin comments that you made can you help us separate the currency effect from some of the mix effects in the quarter in a how should we think about that onto the balance of here.
[noise] I'm going to try to on silver. So specific question unless you do the maybe the second bucket.
For the cosmetics fill Jimmy Choo outsourcing everything in Europe .
It's a high end a line of lipstick and then bullish but kept for a the businesses will be smaller.
We.
What we what we want to achieve we the color cosmetics full Jimmy Choo used to get to most space for frigates, so well have Jimmy Choo, we not become.
The two axes bronto.
Fragrance and and doesn't mean these we just want to two to to try a few of these.
You should see even to get to the biggest space in department stores.
Jimmy Choo.
We are also going to test the beginning of next year now I would say first or second quarter of 2020.
<unk> this in guess stalls we will.
Try also some.
Some color cosmetics guess products in guess stocks.
I will hop on the yellow much we think that a guess because of the fashion statement.
Can bring something good to be Joe, but again, well well do it gets in a very conservative.
Away.
But is known as a pure play you, having the frequency, but if color cosmetics can help.
Distribution or can help or the two gets more space in the <unk> four for frequency will be defeats you use it.
So if it's my but unless you want some silver second thought about the mom.
Yeah, just that I can clarify a a little bit I mean, a for the for the nine months.
Did September your overall gross margin was down a little bit less than 500 basis points, if I want to try to break that out between the currency effect and sales mix I would say the currency effects, we would've expected gross margin to be a to be up by.
Approximately 2%.
And that was offset by the by the sales mix that to the 500 basis points.
That's approximately where we came out for the full year.
Okay, that's great and then rough one more for use on royalty rate because they think about your portfolio today versus the teacher and some of the newer license. If you brought on the royalty structure like consistent or anything and inflation in either the quality of the brand you're bringing in based on a royalty rate basis.
Oh, the rugby rights, we don't seem city I'm, sorry, I'm sorry [laughter].
Yeah. The that's a percentage of sales I think would probably somewhere around 7.37, 0.4% I'd, there really hasn't been any significant fluctuations.
In in royalties in quite some time.
For our U.S. operations again to of course, because of the guess business.
It's increasing the number of sales we have that are subject to royalty. So that will pop that probably has already been factored in.
Afford the U.S. side of the business, where the royalties have of course been increasing because of the greater.
Licensed brands, a greater sales of lifes license brands, but overall from a company standpoint, the royalties have really been pretty consistent.
Pennsylvania.
<unk>.
Most of Verizon <unk>, there was no questions, but I would like to us to talk about the terrorists or from a China now China has imposed the recent fragrance made in U.S. say well also buying some components plastique mental from China, but.
He is not subject to a duties of 25 facade. So vis a vis wall vis a trade war between us and China is costing the company. Some some dollars maybe you can quantify or was it you can.
Maybe explain what we also trying to do we the local warehouses in China Citroen, maybe Oh, yes, certainly you know it yes of course, the the tariffs have had a small impact on our gross margin.
However, I'm trying and and and laying out the the reasons for the fluctuations I tried to go to the primary reasons tariffs, although it sounds like a lot when somebody's, adding a 25% close to your components. The reality is is that up from a combination of a of sharing some of the expense with some of.
Our vendors as well as entertaining programs.
To help avoid some of the tariffs situation a perfect example of that as we have opened up a third party logistics company in Asia, where a lot of the product, especially the the GW piece, where the gifts with purchase that we give away a instead of bringing those into the United States and.
The export them wherever they need to go we're distributing those through this third party logistics company or in Asia, and therefore, avoiding the tariffs completely so we've put together several different programs to help mitigate the effect of the of the overall tariffs, but as John mentioned.
Thats certainly it's worth mentioning because it has had a little bit of an impact in the gross margin, although as I said before we're trying to isolate the the more significant a areas of fluctuation.
[noise]. Thank you.
Okay. Operator is there any further questions certainly our next question is coming from how much of course on from BW as financial your line is now live <unk> Hi, I'm. So first question I had was.
It's changing up in the gas as far as demand is concerned that you think it will displace coach as far as sales is concerned next year.
[noise] displace cooled show, maybe it would be close to coach the.
I guess, he's a guess he's a great to guess has a great to recur brand recognition outside of the U.S.
A win.
When we presented in countries like India.
In a Indonesia, Malaysia, or even in Europe in the in Poland funds us guesses as to consider will vary a relevant to brondeau 60, a fashionable and so we were well even.
Says <unk> quite too surprised by your by the strength of Undrawn outside of the U.S.
So well not.
The plans, which we have <unk> to launch a new frequent somebody's we'd be in <unk> said real Mostra doesn't 20 <unk>. The first when you are.
Franchise of frequency from a dozen band Depofoam because before was it was a dozen by good <unk> and the response of its we got from the from the trade. He's a very good we positioned <unk>, a little bit higher priced them and what was a dozen before.
And the it seems but to the trade. These are accepting it no of course, we need to.
We need to to make sure over the consumer we buy but to the first the impression is quite good.
Okay.
HM.
No. The only thing I would I would add because it's now this the second time that people just trying to guess attitude.
Good point guess at what guess sales will be in 2020 keep in mind that in John's remarks, you indicated that in 2020, we expect it to be one of the top five brands. It may get close to number three but you know I don't believe that well, we're talking about a $100 million.
Brand at this point in time is not yet, but it does this give a potential to be there very soon exactly.
Okay and for Q4.
Are you still expecting the ER product next to be mostly gift sets.
There will be a continuation of some gift sets, but for normally most of the gift sets are sold through in the third quarter, all but there are some residuals and yes. It will include some gift sets.
But it's difficult for me to quantify that at this point at this time.
Okay, great. Thank you.
Thank you have it. Thank you we reach of our question answer session I'd like to turn the floor back over to management for any further closing comments.
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