Q3 2019 Earnings Call
Greetings and welcome to the tailored brands third quarter 2019 results conference call.
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A question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press.
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I would now like to turn the conference over to our hosts Julie Macmedan Vice President of Investor Relations. Thank you you may begin. Thank you and good afternoon, everyone. Welcome to tailored brands third quarter 2019 results Conference call. This call is being webcast a replay will be available on the company's investor Relations website.
I, our dot tailored brands Dot com.
Please note that comments made during the conference call contain forward looking statements.
Within the meaning of the United States Federal Securities laws.
These statements are subject to significant debt.
Economic and competitive risk.
Uncertainties.
And contingencies, many of which are beyond our control.
Any forward looking statements are not guarantees of future performance and actual results may differ materially from those in such forward looking statements.
Please refer to todays earnings release.
Our annual report on Form 10-K , and quarterly reports on forms 10-Q.
To understand these risks and uncertainties.
You can access all of these reports on the tailored brands IR website.
In addition, the information on this call speaks only as of today December 11 2019.
We assume no obligation to publicly update or revise our forward looking statements.
Throughout this conference call management will be discussing results on an adjusted basis.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures and our explanation of why the non-GAAP financial measures may be useful are discussed in todays earnings release.
With me today, our president and CEO , Dinesh sloppy and our CFO , Jack Calandra I would now like to turn the call over to Dinesh.
Thank you Julie and good afternoon, everyone.
Earlier today, we released our results for the third quarter of 29 team that underscore the progress we are making on our transformation and the impact is is having on the top line bottom line and the balance sheet.
On the bottom line earnings per share a 53 cents exceeded the high ended the guidance range. We provided in September of 40 to 45 cents.
On the topline we exceeded the high end of the comp guidance range. We provided at three of four brands and were within guidance on the fourth.
Specifically men's wearhouse comp minus 2.8% Joseph a bank comped positive 0.5%.
Okay, and GE, Comped minus 1.5% and finally, Moore's compromises 5.5%.
The result at men's wearhouse represent a sequential acceleration in comp of 150 basis points, while the results of Joseph a bank represent a sequential acceleration in comp a 380 basis points in the first positive comp since Q3 2018.
Finally on the balance sheet, we ended the quarter with total inventory up 1% versus last year with finished goods down 3%.
Our inventories have never been cleaner from an age perspective.
In addition, we decreased our debt by 56 million versus Q3 2018.
These results are not a fluke.
They reflect the customer obsession and execution focus of our nearly 20000 colleagues.
And importantly, they reflect the customer response to those efforts.
While we're pleased with the progress we're making we know our work is not done.
On our last call I shared that we are in the midst of a transformation that transformations take time.
And that we are executing our transformation in a challenging retail environment.
None of that has changed.
Which means we will continue to approach our customer facing and cost saving execution with the same rigor and urgency that we have over the last 12 months.
Before turning it over to Jack who will cover the financials in more detail.
Going to quickly highlight a few areas, where our strategic initiatives are starting to bend the comp trajectory.
As a reminder, we have been and continue to be focused on three customer facing strategic pillars that we believe are critical to transforming the customer experience.
The first is personalized products and services under which we have been focused on our custom business and our polished casual assortment.
Our custom business continues to perform well in Q3, we averaged roughly $5.5 million per week, and custom clothing sales representing double digit growth year over year.
While we're still seeing healthy growth in the custom business at this scale, we expected to see and are starting to see the growth in our custom suiting business moderate and tracked in line with overall business seasonality as we approach a healthy equilibrium in the eyes of our customers between custom and off the.
Rack clothing.
The custom business now represents roughly 30% of all sleeves sold at men's wearhouse and over 35% of all sleeves sold at Joseph Bank.
On the polished casual side, we saw encouraging strength across multiple merchandise categories at the Joseph a bank and men's wearhouse.
At Joseph Bank, we saw positive comps and slacks shoes dress shirts and sportswear.
The breadth of comp growth reflected strength in performance fabrics across the dress shirts pants and choose categories.
As well as Marino and cotton sweaters, featuring two new silhouettes, Mark and turtle Mac.
And our eco friendly made the matter dress shirts.
The comps were also helped by improved visual merchandising built on the complete or piece approach that we started in Q2 and that is particularly well suited to polished casual looks.
At men's Wearhouse, we saw positive comps in sport coats shoes dress shirts and sportswear.
Prior to Q3 sportswear have not comped positive since Q2 2016.
The strong comp performance in sportswear was driven by earlier receipts and store for set dates for our long sleeve woven.
Improved sides curve allocations and strong consumer response from mix and match promotions across divisions.
From a product perspective, we saw strong results from French Rip long sleeve myth cotton Kashmir, Wovens and new Wogan fabrications, such as our construct branded program.
At both of these brands the customer is responding favorably to continued editing of the polished casual assortment.
Better in stock availability and competitive pricing and promotion depth.
Our second strategic initiative is to create inspiring and seamless omni channel experiences.
E Com as a critical piece of the omni channel experience in Q3 marked another quarter of solid growth in E. Commerce sales at both men's Wearhouse and just a bank.
E Com growth is being driven by a combination of traffic gains feature enhancements and elevated merchandising.
We've seen a clear and distinct positive inflection and our e-commerce sales starting in Q2 and gaining momentum in Q3, where we posted double digit increases at both brands.
This exciting growth reflects the investments, we're making and accelerating our ecommerce capabilities.
Agile development model, we've created that continues to generate new revenue opportunities.
During Q3 hour agile development teams executed over 60 feature tests.
Examples of some of the more successful test that we pushed into production include the following.
Providing customers with information on what products were trending in their specific geography proved to actually be more compelling than traditional product recommendation algorithms.
Also customers responded favorably to seeing badges that highlighted fabric performance features on the product detail page.
And finally, we are mindful of the fact that a majority of our site traffic is occurring on mobile devices and that mobile has its own unique navigation needs.
Accordingly, we've been leaning in on mobile specific features and are seeing meaningful revenue gains from simple enhancements like better exposure of filters and the mobile web experience.
In addition to web site features we also started experimenting more aggressively with site merchandising to drive stronger traffic conversion, while supporting our assortment evolution.
Our Q3 men's wearhouse polished casual event, which drove a significant increase in home page traffic conversion was a great example of how we are achieving both objectives.
We believe elevated site merchandising represents a ripe opportunity for both men's Wearhouse anticipate bank.
Our excitement around and investment in E. Commerce is now supported by the momentum and results. We are seeing in this part of the business.
E Com will continue to remain an important investment area and growth driver in the coming quarters.
Our third strategic initiative is evolving our marketing so that our brand stand for something more than just price.
The do this we said we both engage our customer in the media channels. They frequent.
Until the stories of our brands, so that our customers better understand what they are getting for their dollar.
On the channel shift we continue to move spending from offline to online.
At men's wearhouse, the working media spend mix increased 10 percentage points in favor of online versus Q3 2018.
At Joseph a bank the mix increased eight percentage points in favor of online versus Q3 2018.
Well, we are rapidly shifting marketing investments to more efficient programs to increase conversion loyalty and advocacy among existing customers.
We will continue to invest and building awareness and consideration among potential customers and test our way into the optimal marketing mix that will maximize profitable growth in both sales and new customer acquisition.
On the creative shift.
Our creative across all brands continued to improve quarter over quarter and is increasingly more relevant to our existing consumer and more effective and attracting a new customer.
We're more consistently showcasing age and ethnic diversity in moments that customers can relate to with our polished casual assortment playing an increasingly prominent role.
The channel and creative evolution is driving performance on three different fronts.
First we are seeing growth in new customer acquisition that the aggregate level and specifically within the important younger generations.
In Q3 2019, we saw both Joseph a bank and men's wearhouse shift their new customer mix younger.
We were also encouraged by the contribution to sales growth for both brands from JMP.
Particularly exciting was the gen fee growth, we saw Joseph a bank showing the broad demographic potential of the brand.
Second as I just discussed we're also seeing significant year over year increases in ecommerce traffic.
And third.
Utilizing some of the more sophisticated digital media platforms, we are seeing increasingly compelling data that our investments and online spend are driving improvements in store traffic.
Given these results will continue to aggressively test and learn how to efficiently shipped increasing amounts of our working spend into performance oriented digital channels.
Finally, before turning the call over to Jack I wanted to speak to a few important organizational changes.
Earlier today, we announced that Mary Beth Blake President of Joseph a bank as resigning from tailored brands.
Under her leadership Joseph a bank delivered positive comps in nine of the last 12 quarters, including this most recent quarter.
She has been an impactful leader and she will be missed.
We wish are the best of luck in her next endeavor.
Mary Beth resignation comes as we are developing a deeper understanding of our core customers across all our brands.
That improved understanding is revealing what we believe could be financially significant opportunities.
Execute on behalf of our customers and more effective and efficient ways.
To ensure that we are tightly coordinated as we go after these opportunities.
I'm pleased to announce that we've created the new role of Chief customer Officer.
And Weve appointed carry OSC, who is currently the president of men's wearhouse and Moore's to that position.
Part of this change we are eliminating the Joseph a bank men's wearhouse and Moore's brand president roles.
In her new role Kerry will oversee all marketing merchandising planning and allocation and e-commerce activities purchase of a bank men's wearhouse and Morse.
Carries customer obsession intellectual curiosity.
Analytical rigor and execution prowess or just a few of the reasons that the pace of learning and innovation at men's Wearhouse has accelerated.
At the trajectory of our comps is starting to bend.
And that she is the right person for this new and critically important role.
With that strategy and people context, I'll now turn the call over to Jack who in addition to discussing the financials for the quarter in more detail will also cover our guidance for Q4 2019.
Thanks to Nash and good afternoon, everyone.
Today, I'll review third quarter financial results and guidance for the fourth quarter.
Before I begin I'd like to make sure everyone knows that I will be discussing adjusted numbers today, which eliminates certain items that are not indicative of core business results.
Also as a reminder, on August 16th we completed the sale of the corporate apparel business and have reported the disposal as discontinued operations.
Therefore, my remarks today will be related to continuing retail operations.
Please refer to our press release for more details.
Turning now to results for the quarter.
Total sales for the third quarter were 729 million.
3% with comp sales down 2.2%.
Notably we saw improved performance each month of the quarter and delivered a positive comp in October .
The non comp spread of negative 0.8% was largely explained by close stores and lower alterations revenue.
Gross margin was 308 million a decrease of 37 million.
As a percent of sales gross margin decreased 380 basis points to 42.2%.
About 280 basis points of the decline was primarily due to higher promotional activity.
Increased penetration of ecommerce sales and lower alterations revenue.
The balance came from occupancy deleverage of 100 basis points.
Turning to expenses.
Advertising expense decreased 3 million and was down 20 basis points as a percent of sales to 4.7%, reflecting a shift from offline to more effective online spend as we continue to optimize advertising mix across channels as well as some marketing spend that moving to Q4.
Sure.
SGN aid decreased to 4 million largely due to lower employee related benefit costs.
As a percent of sales has seen a increased 40 basis points to 30.5%.
Operating income was 52 million compared to 82 million last year.
As a percent of sales operating income decreased 380 basis points to 7.1%.
Net interest expense was 17 million down 1 million to last year, reflecting the year over year reduction in total debt.
The effective tax rate was 23.1% compared to 24.4% last year.
And diluted earnings per share were 53 cents versus 95 cents last year.
Turning now to the balance sheet and cash flow.
We ended the quarter with total liquidity of 477 million.
Which includes $456 million available on the revolving credit facility and 21 million of cash.
At quarter end inventories were up 6 million or just under 1% versus last year a.
A significant improvement from the 9% increase we reported for Q2 and ahead of our expectations.
We expect continued improvement in inventory levels in Q4.
As Dinesh mentioned, we also continued to improve the quality of finished goods inventory as measured by inventory age at men's Wearhouse, Joseph a bank and Moore's.
Debt at quarter end was approximately 1.1 billion down 56 million versus a year ago.
During the third quarter, we repurchased and retired 55 million in face value of senior notes at a discount to par.
On a trailing 12 month basis debt to EBITDA was 4.4 times.
Paying down debt continues to be a high priority.
Over the past three years, we have made significant progress on debt reduction, reducing total debt by approximately 475 million.
With a focus on the 7% senior notes that mature in July 2022.
We also extended the maturity on the term loan our largest tranche of debt to 2025.
Although our debt to EBITDA ratio has increased this year due to business performance, we remain committed to reducing debt to EBITDA to three times over the medium term.
Year to date cash flow from operations was 66 million compared to 278 million last year.
The decrease primarily reflects lower net earnings and changes and accounts payable and accrued expenses, primarily due to timing.
We also received a 15 million dollar income tax refund in the third quarter of last year.
Okay.
Capital expenditures through the first nine months were 63 million up $16 million versus last year.
We now expect capital expenditures for fiscal 2019 of 90 million to 95 million.
During the third quarter, we repurchased 2.3 million shares nearly 5% of shares outstanding.
Through open market repurchases for a total of $10 million had an average price of $4.28 per share.
We have $38 million remaining under our board's share repurchase authorization.
With respect to real estate during the quarter, we closed a net four stores opening one KMG store and closing for men's Wearhouse and one Joseph a bank store.
The total number of stores at quarter end was 1451.
Turning now to guidance for the fourth quarter.
We expect fourth quarter loss per share up 50 cents to 55 cents, which implies full year 2019 earnings per share of 97 cents to one dollar too.
Our fourth quarter guidance assumes the following.
For comp sales, we expect men's wearhouse down one two up 1%.
Joseph a bank down one to up 1%.
KMG flat to up 2%.
And Moore's down 6% to 8%.
We expect an effective tax rate of 20% to 23%.
With respect to real estate, we expect net closures of five stores.
With regard to the list for a tariffs that went into effect on September Onest, we expect no material impact to Q4.
As a reminder, most of our imports from China were subject to tariff with the implementation of list for ebay.
And finally this outlook excludes expected costs for third party domain experts and other actions associated with our cost savings and operational excellence programs.
Thank you and now I'll turn the call back to the Nash to wrap up.
Thanks Jack.
On our last call I indicated that we were seeing early signs of customer response to our strategic initiatives.
Our Q3 results are yet another sign that we are focused on the right things things that are starting to bend the trend and comp sales because they are addressing the evolving needs of today's consumer.
The results are also an indication that the tailored brands team is working in a way that recognizes that our transformation has not business as usual and that we will not be satisfied with the status quo.
We are changing the way the company executes for the better by being anchored in and obsessed with the customer by investing for long term sustainable value creation.
By focused execution that allows us to continue to generate cash and meet our financial commitments.
By using data and analysis to guide decisions.
And by moving within urgency to reflects our conviction and confidence and our ability to own the customers loyalty and advocacy.
I'm incredibly proud of the progress the team has made in the face of a challenging retail environment.
And while we still have plenty of work ahead of us.
The continued positive customer response, we are seeing is fueling our excitement for the journey ahead.
With that let's open the line for questions operator.
Thank you.
At this time will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from Susan Anderson with B. Riley SPR. Please state your question.
Hi, good evening, Thanks for taking my question.
Jack I was wondering if you could have a little bit about the gross margin puts and takes for fourth quarter versus third quarter and then also what you're seeing so far from that promotional environment, you expect it to be similar year over year and.
Of course versus last year. Thanks.
Yes, Hi, Susan Thanks for the question so as I mentioned in Q3 the decline in our gross margin was due to higher promotional activity and that was particularly at men's wearhouse.
Higher shipping costs associated with the increased penetration of e-commerce sales.
The lower alterations revenue associated with the continued growth of custom and then some deleverage of occupancy.
We don't guide to gross margin Q4, but to be helpful. I would expect gross margin rate to be down versus last year, but certainly I would expect to see sequential improvement versus what we saw in Q3.
In terms of occupancy that should be relatively neutral to gross margin in Q4, and I would also expect to see some improvement in selling margin given where we ended the third quarter with pretty clean inventories and the continued progress on the strategic initiatives that Dinesh discussed.
Susan It's Dinesh and I'll speak to your question on Hi, I'll speak to your question on promotions.
From where we sit the retail environment was and remains heavily promotional.
As far as our frequency of promotions. It was similar to last year, let's say the difference is we are a lot better about reading and responding to the embedded and competitive environment than we were last year, which means in some cases, even though the frequency with similar the promotion depth may have been deeper than.
It was last year. So we'll continue to experiment with handles and depth.
Sure, we're optimizing for relevance with the customer and of course margin dollars.
Great. That's helpful. And then maybe if you can talk a little bit about your capital allocation priorities I guess with that we appreciate that that this quarter. But then also some share repurchases how should we think about the balance between those two as we look forward.
Sure. Susan this is Jack again, so capital allocation priorities are to first invest in our strategic initiatives, where we can get an attractive return on our investment.
Secondly to pay down debt and then third to repurchase stock on an opportunistic basis.
And you can see the alignment of our actions with those priorities in the third quarter, where we invested 24 million in Capex.
34 million towards debt Paydown, and we bought back the 2.3 million shares of stock for $10 million.
For free cash flow.
We will continue our primary focus on paying down debt and utilize share repurchases on an opportunistic basis.
And so that's that's going to be the plan the continued planning going forward.
Great. That's helpful. And then if I can just had one more and dinesh it sounds like some of the initiatives are starting to bear some fruit I guess, maybe if you could talk about kind of way you're at with mixing in the casual wear in the stores in the penetration sequentially in kind of where you're at all.
All right versus where you look to go in the future.
Yes.
I'd say similar to the way we've talked to about custom we don't necessarily have a target penetration rate with.
With the polished casual and specifically, we just as we did with custom will continue to let the customer guidance as to what the right mixes between polished and tailored clothing.
That being said I want to emphasize just the strong growth that we saw across multiple polished casual categories at both the Joseph a bank bit brand and the men's wearhouse brands and we think those are being driven by specific actions that we're taking whether it's the earlier.
Seats and the in the store set dates.
Improvements in size curves curve allocations, continuing edited of the assortment and then again the strong consumer response, we're seeing from mix and match promotions. So we're making good progress on continuing to weave that in and meet the customer's needs when it comes to a polished casual assortment.
Great Thats helpful. Thanks, so much good that this holiday.
Thank you.
Thank you. Our next question comes from Paul Trussell with Deutsche Bank. Please state your question.
Hi, the same tossing on for Paul Good evening. Thanks for taking my questions. First can you talk about the improvement at men's Wearhouse housing Joseph a bank on the comp and traffic delve into the drivers of that and specifically at Joseph a bank, what's kind of driving that outperformance versus men's wearhouse on assist.
Sequential improvement basis.
Yes, Thanks, Dan for the question the the drivers of that sequential improvement in comp, there's really three big ones that we think about here. The first is what we just talked about with Susan which is the strength across these polished casual categories and we just talked about the things that we're driving that.
The second is our e-commerce growth ecommerce growth was really strong.
And that was being driven by the improvements in traffic in the feature enhancements in the site merchandising that we referenced.
And then obviously the marketing shifts that we've made are helping to drive growth and transactions and new customer acquisition as we continue to shift spend and the digital so those three things all of which are directly aligned to the strategic initiatives that we've been talking about for for nearly nine months now.
The main drivers of the comp improvement Q2 versus Q3.
On the second part of your question as far as bank relative to the men's wearhouse and just emphasizing both brand saw strong performance and multiple non suiting categories and an ecommerce and really the major difference between Joseph a bank and the men's Wearhouse was that Joseph a bank had.
Permits and suiting and specifically benefiting from stronger growth in custom suits, which more than offset decreased sales of off the rack.
Thanks, just a follow up on online where do you see kind of what in your in as far as the enhancements.
To that.
Business and then.
Do you have to percentage kind of penetration for both men's wearhouse, and just say bank with online.
Yes, we don't give out the penetration rates.
What I can tell you is that.
We are seeing solid growth.
And that given the relatively low penetration at both of those brands. We do think it can continue to be for some period of time, a meaningful driver of comp growth then Damon I didn't get the first part of your question. So if you can repeat that Oh, yeah, just on kind of the ending of the enhancements do you think you have at your disposal.
So.
In that business.
As far as far as.
How many how much more ability you have to improve that business with more features and things like that.
Sorry, I was inning I got you what inning are we yes, we are in [laughter] baseball analogy got it yes. We are in the early innings Damon and you can see that in some of the features that we're releasing right now I'd characterize as some pretty basic e-commerce functionality, which is exciting on two fronts. One it's exciting because we're harvesting.
Some of that low hanging fruit and number two it's exciting because it just points to the fact that we still got a lot of runway left in terms of the feature sophistication, we can bring to the site to drive sustained conversion and traffic improvements.
So early in its.
And then last one for me you mentioned Gen Z gross.
Do you have any kind of details as to what's what might be driving that.
Yes, I mean, a big factor in that it's going to relate to the marketing shift that we've talked about and as you remember one of the big efforts there was around shifting from offline to online and the strategy is bearing fruit, we did that because that's where we felt the customer was smelting their time and so weve amped up the amount of investment.
Percentage of media.
On the on the digital and online side, and that's attracting a new kind customer for us all of which is good.
Thank you.
Thank you. Our next question comes from William Router with Bank of America Merrill Lynch. Please state your question.
Good afternoon.
The first as I just want to make sure I heard this correctly was at $55 million of bonds that were repurchased or was that did that include some term loan production.
Hi, Bill it's Jack so that was all on the bonds. So 55 million face value of the bonds that we purchased a repurchase had a slight discount to par.
Okay, and then you had laid out your capital priorities second continuing to be.
Debt reduction I guess will you continue to be opportunistic with regard to bond repurchases in the open market over the next handful of quarters as you generate cash.
Yeah, I would say as we looked at the opportunities to reduce debt both both via the term loan and the bonds.
We'll continue to look at both of those options and we'll consider bill among other things relative maturity dates of those of those debt instruments.
The current pricing at effective yield on each of those.
Any specific covenants in our term loan agreement regarding sources sources of cash that we unlock in the business and then certainly the required mechanics and costs associated with paying down each type of that debt. So definitely continue focus on debt reduction as you know, we've been primarily or almost entirely focused.
On the senior notes, but we'll continue to look at opportunities in both of those instruments and make the best decision Accordingly.
Okay, and then I appreciate your commentary on tariffs in terms of fiscal year 19 impact in the event that list for tariffs are EM.
Implemented the list for be this Sunday do you have a sense for what the aggregate impact on fiscal year 20 would be at this point.
Yes, so we're not we're not guiding and yet on on 2020, but.
List for be really doesn't have material impact on on the business most of our.
Goods imported from China were part of the list for ebay.
Our sourcing team has been doing a lot of good work.
In terms of continuing to.
Reduce our reliance on China for for those imports as well as negotiating with the vendors in China, where we plan to stay.
What I would say just to just a little bit of an update is.
I think you know in 2017, 30% of our imported goods came from China.
And in 2018 that was 23% and I have previously guided that we would be between 18 and 20% for 2019 and that number will now be on the low end of that will be closer to 18% and I would expect continued reduction in that.
Percentage in 2020, but more more to come on or around on our next earnings call.
Okay, and then just lastly from me.
Noted.
Mentioned the cost savings program, which you brought up on the second quarter call I don't think I heard a target on that did you Miss.
Did I Miss that or I guess or will you laid out some sort of a target at some point.
We will I would say, let me just give you an update on where our cost rationalization efforts are to date.
This year, we focused on advertising efficiencies sourcing and supply chain and non merchandise procurements and we've seen some good some good progress in each of those you know in advertising is finished talked about we've continued to shift the mix to more efficient online spend.
In sourcing as I mentioned, we've continued to lower our exposure to China pretty dramatically.
In the supply chain. This year, we consolidated our distribution centers in Canada from two to one now that's not a big Opex savings because the facility. We've closed is an owned facility, but that facility is currently for sale and the proceeds from that sale will be applied to our capital our.
Occasion framework.
And then in non merged procurement, we've had some wins in international airfreight as well as print production expense.
I would say the big opportunity for profit improvement in cost reduction is the store fleet review that is currently underway and the results. The results for that we expect to share on our fourth quarter earnings call in March and Theres, a potential there for both primary and derivative benefits associated with that.
At work and then finally I would just say as Dinesh mentioned in his prepared remarks, as we're developing a deeper understanding of our core customers across all our brands.
As Dinesh said, we believe there could be financially significant opportunities to execute and more effective and efficient way so more to come on that in future earnings calls.
Great. That's all for me thank you very much.
Thank you.
Thank you. Our next question comes from Carla Casella with JP Morgan. Please state your question.
Hi, This is Eric Clark on for Carla Casella, we talk a little bit more about the use of proceeds from your corporate apparel sale and to that end after buying back some that how much debt reduction is needed to achieve your three tightest target leverage.
Yes, so the proceeds from the corporate apparel sale.
Or used for.
Per per these agreement of the term loan.
We are able to reinvest those those proceeds into the business and that freed up cash for reduction that we applied towards our senior notes and so thats, what that's what basically helped fund the 55 million dollar face value reduction in our and our bonds that we saw in Q3.
Obviously, the the but to get to the three X target that will be a combination of both continuing to work down the.
The quantum of debt that we have on the books, but also continuing from the initiatives that they're not just talked about to improve the EBITDA contribution of the business. So I see us getting to that three X multiple through a combination of those two levers.
Got it. Thank you and then one more from me can you talk a little bit more about any promotional disruption that you saw.
That might have confuse customers and Q.
Also seeing into Q or any time promotions going into holiday.
Hi, its to Nash and I wouldn't characterize anything as as a disruption and I think the retail environment was and remains heavily promotional based on what we see.
But particularly around Q3, and we were we were similar and the frequency of our promotion depth.
Similar and our frequency promotion, sorry, and we were opportunistic and our depth.
And that's essentially what we're seeing as we continue into Q4 here.
Great. Thank you so much at all for me.
Thank you. Our next question comes from Hale Holden with Barclays. Please state your question.
Thanks for taking my call I just had two clarifications.
The.
The younger demographics or the younger ages showing of the customer viral what you called out.
That was primarily online and not in store. So if the way to think about how the age town.
We look at the business on an omnichannel basis, and the reason we do that is we recognize and as I referenced in my prepared remarks that even as we're shifting the mix of digital or advertising to online and digital spend and we also recognize that even store based transactions very often.
The result, as or they start with an online journey and so those investments in digital marketing are driving.
Younger generations to both the website and to our stores.
Great. Thank you and then the second question I had was.
On the tariff.
Well I heard everything that you answered to Bill's question, but for 2020.
You have a full year of impacts.
From for B.
In terms of inventory turns sourcing on the rest of it which wasn't the case some nine team.
And I was wondering if we should think about.
Any potential impact there or if you thought you have the pricing capability to kind of off assuming nothing changes.
Yes, so getting back to the tariffs.
You know, we're continuing to look for opportunities to reduce the exposure to China. Further so as I mentioned this year about 18% of our imports will come from China I would expect that that number will continue to fall as we talk about 2020 that in combination with the Nick.
She patients with the specific vendors.
That we will continue within China.
At this point, we think those are too.
Big mitigating items in terms of any gross margin rate exposure for tariffs in 2020, but more to come on that in our next earnings call.
Great. Thanks, so much and best of luck some of the lost 15 days of holiday Sir.
Thank you.
Thank you ladies and gentlemen, there are no further questions at this time I'll turn it back to diminish Nazi for closing remarks. Thank you.
Hi, Thanks.
Just to wrap up.
Incredibly proud of the progress the team made in and as you saw what showed up in our Q3 results.
We have a lot more work to do obviously, but we're excited about the progress. We are seeing we appreciate your support through our transformation and we look forward to keeping you posted on our ongoing progress.
Thank you. This concludes today's conference all parties may disconnect have a great day.