Q3 2019 Earnings Call
Excuse me, ladies and gentlemen. This is your conference operator, the conference call is scheduled to begin momentarily until that time your lines will once again be placed on a musical. Thank you for your patience and please do not disconnect.
Good afternoon, and welcome to the clarity third quarter, earning conference call. My name is Catherine and all of your conference coordinator at this time on lines or any listen only mode.
After the speaker's remarks, there will be a question answer session.
Time, if he would like to ask a question. Please press star and then the number one on your telephone keypad. As a reminder, this conference is being recorded.
This time I'd like to turn the call ever to can't Hannah Senior Vice President and Chief Financial Officer. Please go ahead.
Good afternoon, we'd like to thank you for joining our third quarter 2019 earnings call and web cast a press release with detailed financial tables as well as slides are available at Caleres Dot com.
Please be aware today's discussion contains forward looking statements, which are subject to a number of risks and opportunities.
Actual results may differ materially due to various risk factors, including but not limited to the factors disclosing the company's Form 10-K , and other filings with the U.S. Securities and Exchange Commission.
Please refer to todays press release, and our FCC filings for more information on risk factors and other factors, which could impact forward looking statements copies of these reports are available online.
The company undertakes no obligation to update any information discussed in this call at any time.
Joining me on the call today, as Diane Sullivan, CEO , President and chairman.
I'd now like turn the call over to Diane.
Thanks, Ken and good afternoon, everyone. It was good to see many of you litter Investor day in October . Thank you for joining our third quarter call and for your continued support of Caleres.
During the third quarter, we continued to successfully execute on our strategies as we broadened the region power for our brands and products strengthen connections with consumers and accelerated the innovation capabilities and operation.
Our drive to leverage our investments and insights combined with our industry, leading footwear capabilities.
Allowed us to deliver continued positive same store sales growth at famous footwear and increased market share within the brand portfolio.
As it relates to strengthening our connections with consumers were excited to have opened the new famous footwear store.
New York City ahead of the busiest shopping period of the year.
This store in Herald square, which is just down the street from our original 34th Street location will enable us to broaden the reach of the brand featuring world class and demand brands that are great values.
This high impact brand enhancing location.
It's going to feature dedicated trend shops that will deepen our emotional connection with the customer and truly make them feel a little famous when they shop with us.
As it relates to broadening the reach in power of our brands and products. We also launched 27 added.
Our Halo brand for our Naturalizer brand family and over 50 brick and mortar doors. Following a successful on line performance in spring.
This collection of premium footwear combines all the fit income for components that Naturalizer is known for while elevating the design and materials with them more contemporary aesthetic.
Most importantly, this collection was based on feedback from our consumer insights division, which identified a demand from our target customer not met from our current brand offerings.
We're also proud to report that the Dr. Scholls Herzog sneaker, a versatile and eco conscious sports you to calm the first prize ever and a footwear honor at the accessories Council.
Design Excellence award.
The issue brings to life the brands mission to make shoes, and a new more eco conscious way featuring things like re purpose scrap leather plant baseball men, so linings and top class made from recycled bottles and natural soles made from a blend of right tests and rubber and by this time next year Dr.
His shows will feature eco conscious materials and all of it shoes.
And as it relates to accelerating the innovation of capabilities and operations. We also further expanded our consumer fulfillment capabilities by completing the final automation of our in house distribution facility in the third quarter.
I'm very pleased to report that the physicist facility has performed as planned since the cutover.
Now turning to the details of the third quarter.
At famous footwear, we had an excellent back to school, allowing us to generator eighth consecutive year of positive back to school same store sales growth. This was the biggest 10 selling weeks in the history of famous and contributed to <unk> to a 2.5% increase in same store sales for.
The quarter.
We experienced strengthen our athletic boots, and sandals categories and saw increases in all channels across all of our back to school timing zones. Our kids business was particularly strong in the quarter and our decision to elevator assortment of trend right premium in demand brands and styles with.
Keep programs delivered what our consumer was looking for.
We also benefited in the quarter from continued improvements from our key athletic vendor.
We are seeing our customers respond to our enhanced offering as they recognize that famous offers the best brands and styles at a great value.
In addition to delivering compelling product we are pleased with the results that we've been seeing in a revamped loyalty program famously reward.
And that's driving increased engagement among existing members and continued growth in our new and reactivated membership base.
Existing rewards members are shopping more frequently across all channels and spending more for shopping occasion and of course, we're going to continue to learn and evolve.
To that as we moved to the next phase of this program and make sure that we're continuing to connect with consumers.
Looking forward for famous were well positioned for holiday from both the product mix and a total inventory standpoint.
And our very confident about our assortment, we have a promotional plan and a marketing strategy in place, including a return to TV that we feel will deliver our sales and margin plan.
Now turning to the brand portfolio, where sales were short of our internal plans as we experienced a later start to fall along with a moderation of our core product and associated replenishment programs. In total we were again able to take share in the quarter asset.
Portfolio experiencing sequential improvement over the course of the quarter.
Our fall styles are resonating with the consumer and our boot selling is very strong.
The relative sell through of our brands at our retail partners continues to outpace the market, while we adjust to an industry shift to more dynamic and on demand ordering as evidence by the increases that we are seeing in our ecommerce related sales.
Importantly, we have carefully managed our inventory with merely an 8% reduction year over year exiting the quarter and we're happy with the quality and the freshness of our of the inventory in the marketplace.
You know it's critically important that we built the flexibility into our model because this is allowing us to meet increasing consumer demand for newness in an environment, where retailers have become even more focused on inventory discipline.
On balance we are well positioned to deliver on these changes in consumer in retailer preferences, giving the investments that we have made and our capabilities, enabling speed agility and efficiencies.
So now let me give you a brief update as well on two of our most recent acquisitions fish Malibu and bionic.
Blowfish Malibu product has performed very well in the marketplace and the brand is really naturally position to capture what the consumers looking for right now.
Thats sport in casual lifestyle, this fresh and very young spirit, a constant newness in their assortment and you just top at all off with it can't be price value equation.
This combination is delivering results and Don and the team have done a terrific job by capitalizing on these trends and were really looking forward to seeing what's next from that team.
And that Bionic, we're working rapidly to ensure that the brand can react with more speed and agility to meet the needs of the consumer we've worked with the team to ensure that the brand has the capabilities to deliver trend right product and newness more frequently and they've already moved to a four season calendar.
We also think it's that that we needed to make sure. They at the capabilities to test and validate new constructions of head of mass market launches.
They are now using our data and predictive analytics for the consumer that we found successful in our brand portfolio and then when you add that all up in the end. This is going to result in leaner inventories and fresh product as we will no longer be front loading, but flowing and chasing items.
As Dan Friedman and Chris gathered or have worked together they have already streamline bionics process, taking weeks out of their commercialization and development calendar.
These actions provide even more fuel and support to this brand that has such a unique value proposition.
And finally before I turn the call over to can I wanted to briefly address tariffs and their impact on our business.
This quarter the increase in tariffs that were put into place in early September with almost immediate effect created some headwinds in the quarter.
As a result, our third quarter earnings results include a seven cents gross impact associated with the tariff increase we were able to offset four cents of the tariff headwinds by taking disciplined action and maintaining strong price controls, but our earnings were still impacted by three cents this quarter.
We expect another two cents net impact in Q4 for a total of five cents for the year.
As a result, we are narrowing the top end of our full year adjusted EPS guidance range by five cents to $2.35 to $2.40.
I'm confident that the teams are focusing on what we can control and operating within necessary discipline to deliver our guidance and with that I'd like to turn the call over to can for a financial review.
Thank you Diane.
Good afternoon, everyone for the third quarter, we reported earnings per share of 69 cents. This included two cents of biotic integration related expense and seven cents related to the fair value adjustment associated with the mandatory purchase obligation for Blowfish Malibu.
Reflecting the strength in their business Diane mentioned earlier.
Our adjusted earnings per share excluding these items was 78 cents.
And includes a seven cents gross impact and a three cents net impact in the quarter related to the tariffs that went into effect September onest.
Solid its sales for the quarter of $792.4 million were up 2.1% year over year.
Famous footwear delivered a strong third quarter, reflecting significant progress on our product assortment and marketing initiatives. Our same store sales were up 2.5% for the quarter, reflecting another strong back to school season and are up 1.1% for the first nine months of the year.
Total sales at famous footwear were $446.6 million down 0.5% as we operated 47 fewer doors versus the prior year and ended the third quarter with 960 total doors.
Our brand portfolio total sales were up 4.9% year over year in the quarter, including two additional months of bionic sales in 2019 as well as the planned reduction and Allen Edmonds sales.
Dan mentioned, our brands gain market share and performed exceptionally well at our retail partners with sequential improvements throughout the quarter.
Let's turn to consolidated gross profit and margin for the third quarter consolidated gross profit of $319.8 million was up 2.9% and our reported gross margin came in at 40.4% up approximately 40 basis points from the prior year with contribution from both famous.
What where and brand portfolio.
For famous footwear third quarter gross margin of 41% was up approximately 30 basis points year over year.
The margin improvement we experienced in Q2 continued as the team effectively manage their inventory, allowing to them to resist the temptation to increase the level of promotion in the marketplace.
Brand portfolio reported gross margin of 37.2% in the third quarter up approximately 30 basis points from the prior year, including the benefit associated with purchase accounting year over year.
Our consolidated SGN a expense for the third quarter was up 3.7%, including the additional two months of biotic.
Best DNA represented approximately 34.7% of sales.
And then keep increase of approximately 50 basis points from the prior year.
Famous footwear expense was down $2.5 million year over year, reflecting lower fixed expenses as the operated 47 fewer doors.
Brand portfolio expense was up reflecting the incremental two months of bionic in the variable cost of distribution driven by a higher mix of loose payer shipped this year versus last.
Our depreciation and amortization for the third quarter of $16.2 million was up 2.6% versus the prior year, primarily due to the additional trademark amortization related to our bionic acquisition.
Our third quarter operating earnings were $43.5 million or 5.5% of sales.
Our adjusted operating earnings of $44.4 million were down 5.3% year over year and represented 5.6% of sales.
At famous footwear third quarter operating earnings of $27.7 million represented 6.2% of sales and reflected higher gross margins and lower expenses as mentioned earlier, our famous footwear operating earnings were up 13.4% year over year.
For the brand portfolio third quarter operating earnings were $19.4 million were 5.4% of sales.
Our adjusted operating margin was down approximately 200 basis points versus the same quarter, a year ago, reflecting the bionic amortization and an increase in variable cost of distribution related to the higher mix of drop ship business year over year.
Our net interest expense for the third quarter of $10.6 million was up $6.3 million from a year ago, reflecting the fair value adjustment associated with the blowfish mandatory purchase obligation and the use of our revolving credit facility to finance the October 2018 acquisition of biotic.
Our third quarter tax rate was 21.9%.
Our adjusted EBITDA for the quarter was $63.5 million for 8% of sales.
And our adjusted EBITDA for the first nine months of 2019 was $165 million with adjusted EBITDA margin of 7.4% of sales.
Our capital expenditures were $11.4 million for the third quarter and down approximately $5.8 million year over year.
Now turning to our balance sheet, we ended the quarter with $52.5 million of cash and equivalents are outstanding borrowings under our revolving credit facility were $295 million at quarter end.
Down from $335 million at year end and $350 million a year ago. Following our 2018 acquisition of biotic.
We bought back an additional $1.2 million a common stock in the third quarter and returned nearly $40 million to shareholders in the first nine months of 2019.
Our consolidated inventory position at the end of the third quarter was $644.6 million down $53.6 million year over year, we're almost 8%.
At famous footwear, we ended the quarter with inventory down 3.4% year over year.
And for our brand portfolio, our inventories were down 12.6% year over year as the teams effectively balanced inventory in house and that our partners ensuring quality in freshness of inventory in the channel.
We're particularly pleased with these results in light of our retail partners increasingly ordering closer to need this is requiring us to carefully balance our ability to take advantage of opportunities with our commitment to managing our inventory risk.
Our year to date operating cash flow was $145.7 million up 54% over the same period last year.
As Diane mentioned, we're narrowing the top end of our EPS guidance range by five cents to $2.35 per share to $2 in 40 cents per share to reflect the net impact from tariffs in the third and fourth quarter. We believe we're well positioned to win in the long term with our growth strategies and our business model.
In doing so we will continue to broaden the region power of our brands and products strengthen our connections with consumers and accelerate innovation of our capabilities and operation.
Now I'd like to turn the call lower the operator for today.
Ladies and gentlemen, just as a reminder to ask a question at this time. Please press star and then the number one on your telephone keypad once again that of Star and then the number one.
So first question comes from the line as Rick Patel with Needham Company.
Hey, good afternoon, guys and congrats on the positive comp momentum for back to school.
Thanks, Rick.
So my question is on the brand portfolio with three suit Threeq, you sales coming up a little bit softer guidance for this year of low teens implies that the fourth quarter is going to be up in the low double digit ballpark given that you've now lapped the bionic acquisition and inventories were also down double digits at the brand portfolio.
You can you give us help give us comfort.
Around this acceleration like are there timing shifts coming into play here, new wholesale relationships any context, there would be great.
Sure on record Stan and here's kind of how we think about that brand portfolio in the in the fourth quarter I think.
And the third quarter, we really saw an acceleration as we move through.
The third quarter. So you know August September was better than August October bet. It was better than September and actually our sell through rate thing even as we're into November which suggests that that kind of growth rate that we are forecasting for the fourth quarter is is certainly a possible our inventory.
And our and our food acceleration has been terrific.
Our positioning.
In terms of our ability to satisfy our direct to consumer and our loose pair businesses.
Right on track with respect to that on our dropship and I really believe that.
With that the current trends that we're seeing going into the fourth quarter, we feel pretty good about that that business on the other side on the famous side again, the same kind of thing we've seeing the trends continued to improve.
Were very pleased about and excited about our holiday plans, we're adding TV back to the media mix than on for three weeks in the fourth quarter here. Its they are less and those trends continue now doesn't mean, we don't always have our work cut out for us and we've got to make sure that we continue to drive our business.
As we look at all the.
The.
Trends in our business right now we feel like we are in great shape than last year, we were actually a little light on our inventory and our ability to satisfy boot demands and does this year and were in much better position. So.
I think that that would be a piece of that it can I don't know feels like yes, no I guess as we go in I think when we look at a at that low double digit. If you go ahead and you look at Q1, where we were up Paulenne a little over 20%.
Brand portfolio in Q2 was up around 18% and then Q3 call it roughly 5%.
You can actually be flat in Q4, and still be up 10% for the year. So just I.
I know you had mentioned double digit.
For the quarter, but we're we're running well ahead of that as we had three quarters, where we we had the benefit year over year or the bionic sales.
Got it.
Then a question on your initial thoughts for 2020. So when you look at the range for earnings estimates out there. It's very wide I was hoping you can give us some preliminary thoughts on how we should be thinking about the model. Your long term algorithm is for low single they didn't topline growth and double digit EPS growth do you see that's happening.
In 2020 or is it too early to make that call, especially in the.
Given the curve ball of tariffs any color there would be great.
Well I think obviously, it's tough to give any kind of 2020 guidance at this point in time, but you know the what we laid out at our Investor day in terms of what our intentions were in our aspirations and our growth rates that we would grow at or better than market it would be low.
Single digit topline growth and that we were really looking at continuing to drive double digit operating margin that those long term guidepost that guidelines that we put out there is not really change can't really say yet what 2020 is going to look like we will certainly do that you know in March.
And right now that our position hasn't changed we're just finishing off this year and paying attention to controlling what we can and driving our business.
Thanks, very much good luck this holiday.
Thank you thanks Fred.
Your next question comes from the line of my campaign with <unk> capital.
Thanks for taking my question when we look at the tariff impact moving from three since this quarter. Two cents next quarter is that just because next quarter's seasonally lighter in terms of sales are there things you're doing to mitigate the tariffs that if you give us any kind of comment on.
What's the run rate you think we'll see in 2020 assuming status quo.
Laura the Q3, when we looked at the gross impact a seven cents.
We were not able to two to have much of an impact on price I mean by the time those tariffs went into effect most of those orders were booked for for the quarter. So when we look theres a little bit of price that is is going to be able to help us in Q4, and then as we.
Moving into 2020, we would expect the ability to to offset most of the rest of that from a price standpoint. So it's really consistent with what we've said before over the long term. We don't expect this to have a negative impact but in the short term.
Where it went into effect immediately and we have lots of orders that were already booked.
We were only able to pull a couple of the levers.
As we look forward, we will continue to evaluate.
Just different countries, where we are where we're producing goods is making sure we can maintain quality and speed.
And then we would hope that we could execute a few more of our actions to mitigate more of it.
Understood. Thank you.
Thanks, Laura.
Your next question comes from the line of Chris Visa.
Yes.
Hi, good afternoon, everyone.
For taking my questions I guess first.
I was wondering famous footwear for a moment can you sign any color about how comps progress throughout the quarter and along was pretty consistent about two and Uh huh.
No. It was actually very strong in and August a little weaker in September and then came back again in October So was it kind of ran at the gamut, Chris and Twitter.
Okay and were you made reference to boots being the driver was that.
The quarter that pickup in October .
Good food some inflected.
It was really pretty consistent throughout throughout the quarter, but obviously really October it did really start to kick in.
But it was really the weather pattern as you know in the quarter was a little bit unusual in that obviously, so warm. So we had an opportunity on early selling to be good and sandals were still good and the athletic was positive and you know as we flip to October as the weather change foods kicked in again so it was.
It worked out very nicely the team did a great job and making sure we had the inventory position, where we needed to and we've always done so well on our sport lifestyle categories and that was that was no difference. This this quarter. So it was really a nice balance to I think assortment right brands right styles really across the board.
And a nice kids business too.
Right.
And on the.
Ken for you just.
I guess the power piece is really just not incremental 5% not really what the.
What's new here in the guidance just to be clear.
Well, there's the incremental five and then there was just the impact in Q3 of not being able to offset all of the incremental 15.
Okay.
Alright, and then on the.
So your fourth quarter implied 60 to 65 cents an earnings around my math right just maybe walk during your north of 10 million and EBIT growth.
Hi, I'm curious just walk through if you can sort of the puts and takes what I'll look forward to drive that level of increases.
Yes, I mean, I think you when we when we look at the momentum we've got going in obviously, we talked about on the brand portfolio the boot selling the the inventory we don't.
We're not carrying excess inventory that we feel like we're going to have to push through at lower margins. So we're expecting to see some nice margin expansion in Q4 across the brand portfolio.
The ecommerce momentum we sequentially saw that grow as we move throughout the quarter and so we're expecting that to continue into into Q4.
And then I think from a famous footwear standpoint.
We had a great back to school season, we finished the quarter really strong really happy with all three both athletic boots and sandals all were contributing to the growth. So we feel really good about about that and we had the margin actually expand at famous footwear.
Hi.
30, some odd basis points and so all of that kind of leads to some incremental earnings power in Q4 over last year.
Todd.
Just to remind me how does the I think there are some bionic cost fourth quarter last year on year ago. We had we had 10 cents a dilution from bionic a year ago.
Pizza into that in in Q4, so that was that was in our Q4 numbers a year ago.
Lastly from me just go back to the branded portfolio and the outlook can you walk through if you did flat.
Still about 10% growth on a year.
Trying to understand and one regard it seems like you're saying or some acceleration potentially from this 5% in Q3.
Is that fair to think that maybe Q4 could be stronger from a broker perspective, or we're now just trying to well starting so I guess and part of I think what Rick was was pointing out. So in Q3. This year, we had three months of ionic versus one month of bionic a year ago.
And so we go back to.
Q2, we had three months of Bionic this year versus no months of Ionic a year ago Q4 will have three months against three months. So.
A lot of what we had seen early on in terms of.
The outsized growth was growth was coming from the biotic condition, so that that equates.
You know to an apples to apples in Q4.
Okay. So nothing beaten to death, so youre expecting.
More organic growth so bionic.
Wrapping pretty much everything at this point.
I think selling admin to still be down potentially it's not just mean core business is actually accelerating to some well reinvents actually in Q4, you remember we made the decision to pull back on the the level of promotion a year ago and so we begin lapping that decision in Q4.
Okay.
All right that's not filling for now thank you and all the best you.
Thanks, Chris.
Your next question comes from the line of Steve Marotta with CL King <unk> Associates.
Good evening, Diane and Ken what are the specific expectations for famous footwear comp in the fourth quarter as well as trend quarter to date.
But the trend quarter to quarter to date or by year to date. We said we are 1.1 year to date, yeah, we're not going to provide quarter today or or Q4 expectations. I mean, what we tried to say was.
We had 2.5% and.
In Q3, we saw good.
Momentum as we were kind of coming through the quarter had a very strong.
October and.
All the seasonal fall categories seem to be selling a selling well.
That's helpful.
And you mentioned also that the new Dcs fully automated when do you feel it will run at peak efficiency.
Well, we're ramping and so we start to see here in Q4, some of the labor come out and we would expect to be coming down that learning curve going into 2020. So we'll provide an update on kind of what we think thats going to look like when we do our our year end report and give our guidance.
And we would certainly expect that to continue for a period of time right. We expect some benefits and some productivity gains next year, but we certainly won't be done at that point on this a lot more to as as a.
Even increase the demanded by our E com business and all of that that's going to health and productivity there as well.
Sure one more question as it pertains to famous Footwears promotional cadence through the holiday season did you have for materially at all from last year.
Great question, Steve we actually even in the third quarter, you know our promotional cadence shifted a little bit during the quarter, but if you looked at the total amount of days, where we were promoting it was pretty consistent and that very much of what we're planning to do and December as well little bit a shift of some of our activity.
These were not going to have of one of the friends and family events were putting our.
Our investment back into the the TV in the media, we think that was the right way to go the consumer really responded well.
And so balancing out a little bit of what we're doing in the fourth quarter, but not materially more promotional it off we'll see how it all goes but right now the plan is to.
To continue kind of our our pattern that we.
Developed early in the third quarter.
Okay very helpful. Thank you.
Thanks, Steve.
Ladies and gentlemen, just as a reminder, he'd like to ask a question. Please press star and the number one and your telephone keypad.
Next question comes from the line of 10 Poser with Susquehanna.
Hi.
Both.
Thank you I'm changing my name.
A few questions how many stores.
What is how many stores Jim pose right.
How many how many stores famous towards that you open and close in the quarter and then what's your plan from store openings and closings for the full year.
Then we are looking that up.
The specifics.
If we were.
The savings you, yes, so it looks like we opened and 1912, we closed 55 for a net.
Net lots 43, so 949 as our ending plan.
Okay, but where are we now.
Nine dollarssix the 69.
How many did you opened in the quarter number to close in the quarter.
We opened since you are anger low slow 17 17 them.
And then how many more you putting an opening again didnt for the back for the full year, you're putting an opening how many.
Just one more in the fourth quarter and that one opened already I assume that's right now yes.
And then and then you're going to close.
Another 12 13 correct.
Thank you and then.
What was the comp for the brand portfolio stores.
It was negative five.
Yes, exactly and that was that's the plan reduction and Allen Edmonds.
I think the Naturalizer piece was roughly roughly flat.
Okay and then.
What about so core be tariff you don't know I don't if you have that baked into your numbers or how you're thinking about that because some of your brands.
Looking for Malibu would be impacted by the fairly significantly.
Both of them of the Dr. Scholls product and Lifestride. So how are you thinking about lists for be about.
Yes, I mean, we have taken that into consideration based on what the current.
Current list for B, and the and the 15% so it's about 30% of our.
Production in China, So 70% is a.
It was on list for a and there's about 30% of what we have coming out of China that was on for B.
But this for B is almost entirely I would assume those three brands that I mentioned that and I am I guess right Ryka and then any of the kids related product is also on there.
Can you tell us.
Can you give us an idea of what the bionic sales were in the quarter they were up down there.
Well, they certainly we're up to us.
As we had an incremental two months so and in our results you may remember.
We're up.
They were certainly impacted in third quarter Ken's looking at that five there as I was saying that.
Work that we need to do with them on their corn replenishment categories, we needed to actually accelerate the kind of newness and freshness that they were bringing to the market Sam and no. So we put ill spend a lot of time working with them on that moving to four seasons, a year, making sure that they were using all the capabilities that are.
Sourcing teams could bring to bear to continue to drive some speed there they need a little more freshness and newness added to their assortment. So.
Were really pleased about the pace at which they are doing that we really think thats going to be beneficial to them and to us as we get into 2020, but they were certainly a little light in that corn replenishment, sorry category during the third quarter.
So how do we think about you know to get to know a low double I mean to get to low teens through the year for brand portfolio, you need to low double digit increase from the fourth quarter.
Our brand portfolio, how do what what our by brand or what are the key.
Drivers that you haven't mentioned Sam Edelman at all today.
Can you just give us some idea of what those key drivers going to get to that and how much of that is.
Initially and then how much of that is.
Filling orders that you're counting on I guess, some initiatives will be January ship for spring, but.
Yes, Sam the at so to get to a double digit increase all in and brand portfolio for the year. I mean, I think you can go through you said low teens, you didn't say w.'s that moved into the year or did I misunderstand I thought you said low teens.
And I think that's in your press in your and your.
We're seeing that.
You are expecting brand portfolio sales for the year to be up low teens. That's on your on your.
Right.
What we said was was.
Just a back end to get to get to double digit it can be flat.
Okay, but my question is is what's driving to get to low teens.
You need an 11% increase in the fourth quarter to get to 13%. So what is going to make that up how much of his fill ins what are the brands that you see really doing the heavy lifting there yeah. Most at most of that is we've seen throughout the year initial orders continue to be down year over year I think in in Q3 and.
Actual initial orders continue to be to be down double digit as was replenishment. So the the ecommerce related.
Sales the drop ship related sales thats, where the growth is coming.
And I think we're starting to lap year over year. The some of the significant shifts in the initial order reductions so that's a bit of where you're seeing the the growth, but it's all in newness fresh product I think as Diane mentioned on just what we're doing.
Salmon bionic or are both of those brands have.
Big core replenishment businesses those theres a shift there in both of those two more fashion oriented.
You know product, that's really where the consumer is going and that's what's driving the growth really across the entire brand portfolio.
Okay, and then could you just tell me how much of your business.
Is how much of your.
Ran portfolio business is your own e-commerce business, because that sounds like it's your in house E Commerce plus.
Plus dropship too.
And the dropship model that you're doing with your wholesale partners.
Driving a lot.
Can you give us an idea of what percent.
Either.
One of those are or the combination of yeah, well, let me give you sort of a flavor for what third quarter was Sam about 30%, 38% of all of our business was in some ecommerce related.
Sale, whether it was jacek.
Two other retailers our own E com and that grew substantially.
In the quarter and we expect to see that kind of same kind of pattern that same kind of gross on on the base that we had last year in the fourth quarter as well.
Right, but but I mean, you're also talking about so ends to zappos for argument's sake, what I'm talking when you're talking I'm asking you about your own e-commerce , which of the sell through number and your drop ship, which is automatically an order from a consumer. So if you. So what does that number that actual out the door sale.
Number as a percent not what you're selling as a wholesale water to a like like to famous footwear dot com I mean.
You are selling they do carry the room inventory and then you also do dropship, so what's that drops it.
Yes, so year to date that is roughly 32% of our total direct to consumer.
So that's again.
Yeah, our own our own dot com.
Your own Dot com is 32% of the brand portfolio business right now, but other direct to consumer business for dotcom.
All right you are right I'm going to I'm, sorry to drive you're crazy.
You did $360 million in brand portfolio this quarter.
Of which.
What percent was the combination of drop ship and your own E Commerce business.
Which is telling you that like all that direct to can it's all that would all be direct to consumer.
Diane was mentioning was like 38% of.
Does that include but does that include wholesale orders to SAP or is that just what does that but no. It's single care orders directly to the consumer okay. So its 38% so about 6% of your businesses is drop ship and then the other 32% is.
Is this your own business and how fast do you foresee.
The direct drop ship that sorry, the direct e-commerce business growing for the balance of the year and sort of down the road.
Well the direct to consumer business has been growing at close to 30, 30%.
And talk about the e-commerce , well I've talked maybe ecommerce part of that.
And our E Commerce business has been growing at a similar rate.
Okay.
And do you expect that I mean looking ahead I know you've got guiding the next year, but I mean, when you look ahead over the next few years do expect that growth to accelerate as you put more effort against it or is.
Or expected to continue and yes.
Accelerate I.
I mean that was the you know a significant part of the investments we made and the capabilities of being able to you know not just do obviously case that pack, but single payer directly to consumer and all the automation in our distribution facilities that then the goal is able to make sure that we can you know address that specific.
Consumer need and demand going forward for growth.
Okay, and I would assume that in the fourth quarter that that number goes up as there's more demand I mean, that's just the nature of data business that yet.
Is that a higher margin business is having that instead of sales at higher margin. Yes. It is on on the bid on the bottom line, yes, yes.
Thanks, very much and the good luck. Thanks. Thank you thanks Sam.
Your last question comes from the line of Wayne Archambo with monarch.
Hi, good afternoon.
Thanks, Hi, how are you.
I'd now are you.
Good so would the sales up 2% overall inventories.
Our own in the quarter.
I know Sam kind of going into a lot of.
Details within these different pockets of your business, but.
Is there an active strategy to to manage.
Working capital accounts more closely are you actively bringing those inventories down or as part of that the the net closures of 43 stores or is there an active strategy in place to manage inventories that inventory turns more efficiently. Yes, I mean, we've been working at this now for awhile.
And you know clearly we've been trying to follow much more of the speed model and I were you know bring product and much closer to need and making sure that were not.
Filling the pipeline up too early and responding more in season, and and all of those things Wayne or been a key part of what we've what we think is gonna be critical in terms of how we deliver we grow when we deliver the kind of earnings we want to over the next couple of years.
If you look at Wayne our total inventory was down about 8% so famous with the fewer doors was down.
3.4 per site the brand portfolio, which is where we were up at the end the last quarter and what we had said was that we were working to shorten some product lifecycles and and we're hoping to be down.
By the end of the year. So we were able to work that through in Q.
Q3, and we ended up down year over year about 12.6% and inventories in the brand portfolio. So.
That that aligns us with where the consumers going which is more you know more freshness.
Newness and that's that's a line now really across the chain with kind of how the consumer is behaving.
And when we expect the net number.
Next calendar year to decline similar to the net negative 43 on the number of stores at famous would would would you see a continuation of that next year.
Yes, I mean, we havent finalized the net reduction in the store base, but in terms of when we think about that as those stores are coming out so is that associated inventory. So it's been pretty consistent.
Okay, great. Thanks, guys happy holidays. Thanks.
Yes.
And there no further questions at this time.
Okay. Thank you very much just to wrap up were really pleased with our ability to react quickly to the changes that we've seen in the environment and that the see this is an important validation of our capabilities and our people in our model.
We're always going to stay focused on operating with excellence and creating consistent profitable sustainable growth over the longer term and with that I'd just like to wish everybody a happy Thanksgiving and we look forward to seeing on many of you next week at end market week. Thanks.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.