Q4 2019 Earnings Call
before we
Again, let me remind you that statements made on this conference call and in the company's presentation materials about the company's Outlook plans and future performance are forward-looking statements are actual results. May differ materially from those projected.
For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements. Please refer to the company's most recent annual report filed with the Securities and Exchange commission's and the presentation materials posted on the company's website.
On this call, the company will reference various non-gaap Financial measurements on pages two, and three of the presentation the company has included Gap income statements for the fourth-quarter and full-year 2019 and a Reconciliation of these non-gaap Financial measurements to the gaap financial measurements is provided in the company's earnings release and presentation materials. Also today's call is being recorded. I would now like to turn the call over to mister Casey, please go ahead. Thanks very much. Good morning everyone else. Thank you for joining us on the call before we walk you through the presentation on our website like to share some thoughts on our business with you earlier today. We reported sales and 1.1 billion hours for our fourth quarter. That's the strongest quarterly sales ever reported by our company.
our growth in sales
Was written by our retail and international businesses. So a good demand for Our Brands over the holidays with comparable retail sales in the United States up over 2% in the combined November or December time. He Commerce drove the growth in our retail sales.
Online sales grew to 36% of our total retail sales and a quarter up from 32% last year.
As expected us wholesale sales in the fourth quarter. We're a bit lower than last year. We had a nearly 40% decrease in off-price sales, which were elevated last year to the Toys R Us in time closures that decrease in sales was largely offset by double-digit growth in our exclusive brand sales to the largest retailers of young Children's Apparel Target, Walmart and Amazon.
Our growth in international salesman quarter was driven by a strong finish in Canada with comparable retail sales up about 8% earnings in the quarter were lower than last year in reflection impact of lower traffic to our us retail stores recently consumers are choosing the convenience of shopping with us online e-commerce continues to be our fastest-growing and highest margin business.
With respect to business Trends demand was a bit inconsistent in October as consumers to slowly transitioned into cooler weather outfitting. We have positive retail Thompson, October and better, in the holiday shopping.
Our store traffic in the United States lacked average market trends in October and November and then meaningfully outperform market trends in December.
Our spring product offerings got off to a good start earlier this year but sales Trends have slowed in recent weeks are comprable retail sales in the United States are down about 1% Year-to-date growth in Iraq is largely offsetting lower store sales.
For a year or reporting record levels of sales earnings per share and cash flow the gainsharing 2019 and strengthened our position as the leader in young children's appears with the largest share of the $27 billion dollar US market.
Proof price realization and significantly mitigated our exposure to tariffs imposed on China Imports and we negotiated lower product costs for 2020.
2019 we distributed nearly 90% of our free cash flow to our shareholders dividends and share repurchases earlier this month our board of directors declared a 25% increase in our company's quarterly dividend an authorized an additional five hundred million dollars in our share repurchase plan, which we expect to execute in the years ahead.
It's our last call with you. We have Revisited the growth. We believe it's possible over the next five years in setting our new growth objectives. We're mindful that market conditions have been challenging in recent years and wait on the growth we had otherwise thought possible.
With fewer annual births in the United States the closure and downsizing of several large retailers and fewer International Shoppers likely affected by the stronger dollar young children's approve or decline 6% last year.
Challenges we believe we can outperform the market and good growth is possible in the years ahead.
in round numbers, we believe we can grow sales by over $400 by 2024.
Expect more than half of that growth will be driven by our eCommerce business and a hundred billion dollars in growth is projected in each of our us wholesale and international segments.
We have the potential to outperform. These growth objectives are projections reflect over $2 billion dollars in cash flow from operations over the next five years.
Currently we believe there are relatively few attractive acquisition opportunities. We plan to continue exploring those opportunities We Believe would provide a new source of growth and attractive Returns on investment.
Absent better alternatives to allocate Capital we plan to continue returning excess Capital to shareholders through share repurchases and dividends.
We Believe Carter's is uniquely positioned to gain share in the young Children's Apparel Market, we provide non-discretionary essential core products and exceptional value to all families with young Thursday. We are the largest specialty retailer of Children's Apparel in the largest supplier of children's of comparable to the largest retailers in North America are brakes are sold in over 18,000 store locations. And on the largest online Platforms in North America, wherever consumers are shopping for Children's Apparel, they are like leaves a strong presentation of Our Brands.
Our growth plan is focused on four key strategies which are winning and baby aging up Our Brands leading an e-commerce. I'm spending globally.
Carter's is the number one brand in baby apparel with five times the sheer of our nearest competitor our research suggests that nearly 90% of Millennials shopping for new shoes apparel last year purchased our Carter's brands.
so annual
In the United States have trended lower in recent years. We have increased our customer base through effective marketing strategies and extensions of our product offerings.
The closure of Toys R Us and Babies R Us in 2018 was disruptive to the baby apparel Market in the United States We Believe Target Walmart and amazon.com largest beneficiaries of those closures. And thankfully they are three of our top five Full Sail customers.
Nearly twenty years ago. We developed exclusive baby apparel brands for Target in Walmart. And in more recent years. We launched an exclusive brand for Amazon.
2019 we saw double-digit growth in our exclusive brand sales, which collectively our margin accretive to our company's operating margin.
Expect Target Walmart and Amazon will continue to be a good source of Road force and years ahead enabling low single-digit growth in wholesale sales.
By the 32-year low in the US birth rate. There are still three point eight million beautiful babies born every year in the United States 3.8 million new reasons to shop with Cox our analysis suggests a possible stabilization and the number of annual versed in the years ahead with a peak population of men and women in their late twenties and early thirties with a time when many began to start their families,
we have the number one market share in baby and toddler apparel markets and a growing share in the five to ten year old apparel Market a few years ago. We extended the size of our Carter's and Oshkosh Brands to serve the needs of slightly older and larger children.
2019 those additional sizes generated over $100 in sales. We refer to this initiative as our age of strategy. We believe this strategy life Partners to increase the lifetime value of its customers.
The largest growth in sales in 2019, but within percentage and the absolute dollars was driven by our product offerings for the five to ten year old children.
Single-digit growth in our toddler and kids apparel sales helped us offset a 1% decline in our baby apparel sales.
With the continued success of our age of initiative and projected stabilization of birth Trend in the years ahead. We expect continued low single-digit growth in our general sales.
Our cars brands have the largest share of the Commerce Children's Apparel Market in the United States with twice this year of our nearest competitor with the support of our Wholesale Club. We expect the total online purchases of Our Brands to exceed 1 billion dollars this year.
In our direct-to-consumer business, we provide a multi-brand website experience with three of the best-known brands for families with young children including OshKosh B'gosh and Skip Hop bath.
Summer we completed a year-long effort to strengthen the experience shopping with us online improve the product presentation navigation search capabilities and life experience and the fourth quarter Carter's online experience was rated Superior to a majority of the 60 largest US and European eCommerce sites.
In recent years, we've invested in technology which enables the same day pickup of e-commerce orders and full access to the broader scope of our product offerings to Consumers shopping. In fact this past year we tested with success a new capability which enables us to fulfill e-commerce orders from our stores.
We believe this initiative will improve the productivity of our inventory increased the speed of related deliveries to three days or less and reduce the cost of those deliveries effectively the improvements to our online experience and knew omni-channel capabilities meaningfully improve the trend in e-commerce sales in the second half of 2019 month given a secular shift to online shopping. We expect Rd Commerce penetration to Total us retail sales sales to grow from 32% in 29000 to 42% by 2020 for
a retail store
Continue to be an important part of the consumers experience with our brands that said over the next five years. We expect to close more stores than we will open.
Are co-branded stores continued to be our best performing store model. It provides the most productive Carter's and Oshkosh product offerings in one convenient location.
Given the success of our co-branded store model beginning this year. All Carter's Standalone stores will carry the very best of our OshKosh B'gosh product offerings, including the iconic wage overalls and at school uniforms while our stores will carry our Carter's branded sleep wear underwear and socks.
Our Merchants have worked this past year to eliminate unnecessary redundancies in our Carter's and Oshkosh product offerings, which we expect will improve ourselves and traffic.
Further improve the consumers experience shopping with us online in our stores. We launched a Carter's credit card program last summer. It's an enhanced loyalty program that provides instant credit advance notice of special offerings free shipping on all orders and extra points in related savings on future purchases today nearly 400,000 customers have enrolled in our credit card program and 20% of those customers were new to our customer database.
the profitability
Sales through our credit card program is higher than other credit card transactions the reasonable assumptions. We believe this new credit card program could contribute twenty million dollars or more to our birthday parties by 2024.
Our stores and websites have become interdependent in recent years and increasingly referred to as the omni-channel in 2019. We saw a 10% increase wage. I mean Channel customers.
Our highest valued customer the first shopping with us online and in our stores these customers send nearly three times the annual amount of our store only or e-commerce only customers off.
We believe we have a competitive Advantage owning three great Brands serving the needs of families with young children.
Multi-brand fires now represent 44% of our customer base. It also spent three times the annual amount of our single rear end customer.
We plan to extend the reach of Our Brands globally and profitably our friends are sold in over ninety countries through our own operations and relationships with retailers throughout the world. We will continue to pursue opportunities that enabled profitable growth in New Markets.
International sales contributed over 12% of our Consolidated sales in 2019 and are expected to grow to fourteen percent of sales by 2024.
Over the next five years about 70% of our International sales growth is forecasted to be driven by our multi-channel operations in Canada and Mexico over the past five years. We have made significant investments in consumer-facing and revenue driving capabilities of the United States. We plan to leverage those Investments and extend those capabilities to support growth we envision possible in North America.
Our Brands are sold through Wal-Mart in Costco on a global basis
Last year the Amazon one star simple Joys bring in Europe.
We expect good growth from these multinational retailers and other retailers who are extending the reach Our Brands to families with young children throughout the world.
We've lost ground in our operating margin over the past two years and plans to return to margin expansion beginning this year earlier this year. We executed an organizational restructuring across multiple parts of our company.
The objectives of this initiative are to improve the productivity and efficiency of our organization and to reduce the related cost of operations by about $15 a year off. This initiative is a component of a broader multi-year hundred million dollar productivity initiative, which we believe will enable us to improve our operating margin to about 12 and half percent by $20,000.
Other areas of opportunity being pursued include better Inventory management, which we believe will enable improved price realization improved marketing Effectiveness to Consumer education and personalization and a new digital product development process, which we believe will enable will strengthen our product offerings improve forecast accuracy lower costs.
Back to our supply chain operations over the past few weeks. We've been monitoring the ramp up in production at our suppliers in China travel restrictions and an abundance of caution to contain the coronavirus will impact production schedules and the timing of shipments this year our employees and Hong Kong and China are largely back to work and in contact with our suppliers many Factory workers were given an additional week or more time to return after the Chinese New Year holiday. They normally would have returned the week of February 10th.
Our suppliers have not yet determined with certainty the impact of production delays today. We'll share our best estimates of the growth. We believe as possible this year, exclusive home of any virus related delays expect by our next call in April. We'll have better visibility to the potential impact on our growth plans this year.
Over the years we've managed through the cotton crisis Port strikes and other challenges. They have a time-tested team of professionals including over 400 employees based in Asia who will help us out is through this latest challenge.
Summary, we continued to achieve growth in a very challenging retail Market in the outlook for our business is good. We have built a unique multi-brand multi-channel model, which we believe is well positioned to grow and gain marketshare. We're committed to strengthen our business and provide good returns to our shareholders in the years ahead want to thank all of our employees throughout the month of your sales growth and their commitment to achieve our growth plans.
Richard oh now walk you through the presentation on our website.
Thank you, Mike. Good morning. Everyone fourth-quarter another eventful year for Carter's. So let me begin on page for where we've summarized a few highlights of 2019.
By the challenging retail and young Children's Apparel Market, we were able to deliver growth both on the top and bottom line.
Continue to grow our direct-to-consumer business particularly in the e-commerce Channel. We invested in improving our website and building out our omni-channel capabilities and we strengthened our store Palm Way Out by opening a number of new productive co-branded locations.
exclusive
Available at Target Walmart and Amazon also posted very notable growth.
2019 we also achieved record operating and free cash flow which enabled us to continue to return meaningful Capital to our shareholders through dividends and share repurchases.
Page five we faced some headwinds in the past year at the Young Children's Apparel Market in the US declined about 6% Despite this backdrop. We increased our industry-leading market share in the US Bank basis points to 13.8%
Our full-year adjusted p&l is included on page six for your reference. Pull your net sales for just over 3 and 1/2 billion dollars with four hundred and $1 in adjusted operating income and the job of $6.46 which represented growth of 3% over 2018.
Turning to page seven and our adjusted p&l for the fourth quarter quarter Consolidated net sales were 1.1 billion dollars up 1% versus the prior-year which was consistent with our previous guidance off our us retail and international business has drove our growth in the corridor.
Gross margin was 42.5% down 70 basis points versus last year reflecting higher inventory provisions and higher tariffs on products from China.
Royalty income with seven million dollars in the quarter down about 3 million dollars versus last year reflecting the conclusion of a licensing agreement and the enforcing of a previously licensed product category.
Spending was up 1% in line with top-line sales growth expense control was a priority throughout all of 2019 with full year adjusted sg&a growing less than 1% off Amici's Thirty basis points of Leverage.
Adjusted operating income was $162 in the fourth quarter representing a 14.7% adjusted operating margin.
Hello line net interest in the fourth quarter was comparable to do thousand eighteen and we had a slight gain from foreign currency in Q4 of this year compared to a loss a year ago.
Our average account declined 4% compared to last year reflecting the benefit of our use of capital for share repurchases. So on the bottom line fourth quarter adjusted EPS was $2.81 compared to $2.84 in the prior-year.
I'm going to page eight with some balance sheet and cash flow highlights.
We ended 2019 and a strong liquidity position with cash on hand and available revolver capacity totaling nearly $650 your inventory screw 3% year-over-year inconsistent with our expectations on a unit basis inventories were comparable with last year.
We feel good about the quality of our inventory entering the first quarter with excess inventory at the end of the year down meaningfully versus a year ago.
Our leverage at the end of the year was modest and we continue to have significant flexibility to invest in the business and to pursue growth Alternatives that we find attractive. We summarized here details on our strong cash flow and 2019 and our progress in returning Capital to shareholders. I'll speak a bit more about return of capital and a few minutes.
On page ten. We summarized our business segment results in the fourth quarter all of our business segments delivered operating margins in the mid-to-high teens benefiting from the billion-dollar top-line Revenue in the quarter off posted year-over-year margin improvement in our international business. The margins were lower in our retail and wholesale businesses for reasons, which I'll cover in a moment.
returning to
Fourth-quarter results for the retail segment on page eleven lws retail segment sales grew 2% in the fourth quarter comfortable sales increased 1.6% driven by strong e-commerce.
Comfortable sales during the combined November December holiday. We're up 2.1% stronger than what many of our peers across the industry achieved during the same.
Listen to our forecast fourth-quarter sales came in somewhat below our expectations in part. We think due to the shorter Thanksgiving to Christmas selling. This year.
2019 we made good progress in improving our retail store portfolio during the year. We hope and 43 stores and closed 25 majority of the door closers were older underperforming store locations.
Adjusted segment margin for retail was 16.3% in the fourth quarter compared to 16.9% a year ago. This performance reflects higher product costs and inventory related Provisions partially offset approved price realization and expense leverage week having the full year for us retail net sales grew 2% and comparable sales grew 0.4% 2019 represented our 13th year of positive comps in our retail business.
Need to page twelve with an update on our omni-channel initiatives 2019 was the year of good progress in strengthening our omni-channel capabilities and we saw a meaningful acceleration of consumers utilization of these capabilities in the fourth quarter our same-day buy online pickup in-store service gained a significant traction particularly at the Christmas holiday Drew closer and consumers sought out the convenience of in-store pick up their purchases versus waiting for shipment to their homes.
We also saw a significant increase in the number of consumers choosing to have their online orders shipped to their local store. Cuz obviously encouraging as a drive the additional traffic to our retail stores.
And the fourth quarter we successfully tested fulfillment of online orders from a number of our store locations based on the success of this test. We're planning to expand the use of our stores for online order fulfillment later this year.
Mostly related to our omni-channel capabilities is the Carters credit card, which is a new capability and consumer offering which launched mid year in 2019.
the card is
Integrated with our successful rewarding moments loyalty program and provides consumers and number of benefits including free shipping on e-commerce orders.
Page 13. We're very pleased with the performance of our e-commerce business in the fourth quarter earlier in 2019. We relaunched our website. This was a comprehensive initiative which made our site easier to navigate and Shop, especially for consumers using mobile devices. We made improvements and enhancements across multiple areas, and we've seen a meaningful lifting conversion and sales growth since the new site went live rep.
Page 14. We have a photo of a new co-branded mall store just north of Atlanta as we discussed on a previous call Gymboree was a significant retailer of young Children's Apparel doing over six hundred million dollars annual sales at the time of its exit from the marketplace while we remain cautious on small real estate in general We Believe Kimberly's exit provides an opportunity for us to capture additional market share thoughts and select mall stores. This particular store is a former Gymboree location, which has now reopened as a bright and inviting Carter's Oshkosh co-branded store to store is approximately 2300 months smaller than our traditional co-branded store roughly five thousand square feet.
The store is focused.
On baby and toddler products which are among our most productive assortments in both sales and margin.
We have about ten of these baby toddler mall stores today and performance so far has been very encouraging both in terms of sales and profitability.
Our analysis suggests that about 30% of consumers shopping and these new format stores are new customers for us individuals not previously in our customer file.
We plan to open approximately eight more of these stores in 2020 performance continues to be attractive. We see the potential to have roughly another eighty of these stores which would represent an incremental sales opportunity of about $80,000 to our current long-range plan on the next page which summarized the latest information on our social media presence and influence Carter's continues to lead industry peers in the number of followers on Facebook and Instagram and our Instagram post continue to drive the highest consumer engagement.
And the fourth quarter on Instagram, we had a nearly three times the number of net new followers as the next closest brand in young Children's Apparel.
I paid a 16 and 17. We've included some examples of our Carter's and Oshkosh marketing for the upcoming spring season.
It's warmer weather and the Easter holiday on the horizon Carter's and Oshkosh have the products that families need our marketing highlights current Spring Seasonal products including options for Easter family dressing as well. As our home as year-round iconic products such as Carter's pajamas in OshKosh denim.
Turning now to page Eighteen With results for our wholesale business fourth quarter net sales in with $349 down 1% compared to the prior-year wage. And if we lower sales to the off-price channel in the fourth quarter of this year offset by continued good growth and demand for our exclusive Carter's brands.
Fourth-quarter segment operating margin was 19.2% compared to 21% in the fourth quarter of 2018. This performance reflects entire inventory Provisions increased bad debt expense changes customer mix and lower royalty income.
It's all year in 2018.
Net sales in our wholesale segment grew 2% with record sales with our top for customers.
Let's pull your wholesale sales of 1.2 billion. Our wholesale business has now recovered to the level of net sales before the disruptive bankruptcies of Toys R Us monton and fears.
Looking forward we remain focused on several key areas, which we believe will drive our wholesale business a few of these are listed on page eighteen. We want to build on our tremendous Authority in the core baby category many of our Wholesale Club are excited about developing the toddler age segments with us. We're like baby we have the largest market share.
Fastest growing part of many of our customers businesses is eCommerce. We continue to actively support our customers efforts online and we are benefiting from their growth in this channel.
I think it's nineteen and twenty we've included screenshots of targets and Walmarts webpages. Both of these retailers are building significant online businesses and leveraging on the strong in-store presence of dead on you and child of mine brands.
Continue to actively support the growth of these brands with each of these winning retailers through new and Innovative products and through marketing and branding Investments.
A page 21 we continue to see substantial growth in our simple Joys brand which has quickly become one of the more significant apparel brands on Amazon.
I'm going to page twenty-two and international segment results for the fourth quarter.
International sales increase over last year in the fourth quarter driven by Canada and our other businesses outside of North America. We had excellent performance in Canada where we posted a nearly 8% increase incomparable retail sales rep.
During 2018 our Canadian team was able to add to our market share which is now over 19% further solidifying our leading position in Canada.
Profitability and international was comparable overall with an improvement in this segment operating margins.
Page twenty-three. We continue to make progress in Mexico during 2019. We open for new retail stores, which mirror are successful co-branded retail store format in the US and Canada.
These stores represent a larger footprint than our Legacy stores in Mexico allowing for a more Complete product and brand experience results to date have been encouraging the store showing here open just before Christmas and woke up to a good start. We're planning to open an additional four stores in Mexico in 2020, and we see an opportunity to double the size of our retail business in this market in the next five years.
we also
Ecommerce operations in Mexico in the fourth quarter. It's 24 is a screenshot of the Mexico website homepage. It remains early days. The consumer response has been strong the e-commerce Mark Mexico. It's still developing relative to the us, but we believe it will be a good source of growth in this important Market going forward.
A page twenty-five and a new opportunity for us with the circle enjoyed a large and loyal base of customers from Brazil Who shopped with us here in the United States. We believe we have an opportunity to make Our Brands available in Brazil itself in a more meaningful way. We recently finalized in agreement with an existing wholesale partner reassure swallow to develop the Brazil Market you swallow was a sizeable and successful retailer in Brazil and has carried Carter's branded products in its stores for the past several years under this new agreement. We have swallowed will become our exclusive partner in Brazil and in 2020 will begin opening stand off Carter's branded retail stores throughout Brazil.
I'm just kind of longer-term objectives. We've summarized some thoughts on page twenty-seven.
Clear as articulated in our mission statement to serve the needs of all families with young children and to be the world's favorite brands in the young children's Marketplace over the next five years. We believe it's possible to grow our top life at a low single-digit rate. This would have us reach nearly four billion dollars in net sales with the brands we own today. Additionally, we believe we can improve our margins through both expansion and gross margin and good management of spending to achieve mid single-digit growth in operating income. We're assuming continued share repurchases which would enable higher growth in earnings per share than what we are forecasting for operating income. But we have many priorities at the company. I think three of the most important are summarized at the bottom of page twenty-seven.
First were obviously interested in top-line growth, but we want sales to come with profits. Secondly. We are committed to improving the profitability of our business overall. And finally, we believe strongly in returning excess Capital that the business May generate to our shareholders.
Some of the building blocks of our plant growth are summarized on page twenty-eight first everything starts with great product Our Brands and products are known for the exceptional value, which they provide to Consumers we continue to invest to ensure that we have compelling and competitive product assortments. One of the Hallmarks of our company has always been broad Market presence both in the wholesale Channel and in our own retail businesses, we want to be present for parents are shopping the success in recent years of our exclusive Brands is a good example of providing great product and compelling value and those retailers were moms and dads are shopping frequently to meet the needs of their families.
our Focus as a company of
And are you off retail businesses? We have a powerful combination of convenient easy to shop retail store.
And what we believe is the industry-leading online site for young Children's Apparel. We've invested in omni-channel capabilities as the store and online World continue to converge. These capabilities will continue to grow and evolve contributing We Believe too good growth in our direct-to-consumer businesses over time.
Finally, we see good demand for Our Brands outside of the United States. We will pursue opportunities to capture this Demand thoughtfully with a focus on growing International sales profitably.
In most markets outside of North America We Believe aligning ourselves with strong local market Partners will be key to our successful execution.
My page twenty-nine we recapped what we believe will be. Some of them won't more significant sales and margin drivers over the next several years. We believe the majority of our growth will be driven by e-commerce. So many of our investments are orange and supporting this business in particular. We will continue to optimize our retail store portfolio closing older less productive locations in favor of co-branded stores closer to the consumer.
Will also assess alternate store formats and locations such as the baby toddler monster I discussed earlier.
National are also expected to contribute to growth over the next five years.
They're targeting about a hundred basis points of expansion of our Consolidated operating margin by 2024. We believe there are a number of aspects of our business which will contribute to achieving this objective.
First is Mike said we have a number of initiatives intended to drive greater inventory productivity, which we believe will enable higher price realization and that's improved gross margins. These initiatives are a combination of process improvements in part by deploying new technology and The Business.
Second some of the new sources of revenue which we've added in recent years have not yet reached their full potential in terms of profit contribution. We're focusing on the businesses listed on page 31 in particular in club hip hop and simple Joys where we've made very good progress recently and I have further profit Improvement plans in 2020 and Beyond
I finally we're increasing our efforts around driving productivity and efficiency across the company. I think we've always done a good job in managing spending but in this competitive market more progress is required.
8:30 as my end is Mike reference. We have recently executed some fairly comprehensive organizational changes across the company these activities include realizing opportunities in our retail hours of operations both in the US and Canada and across our Global Supply Chain functions. We're continuing to scope additional productivity opportunities to realize the hundred million dollars of profit Improvement, which Mike referenced Thursday. It's unfortunate the opportunities that identify will be reinvested to support future growth and strength in the business.
Hotel
Expect that first quarter results will include an estimate of charge of ten to twelve million dollars related to these restructuring actions, which we expect will generate about $15 and go forward annualized savings across the company off a page Thirty-One one of the stronger aspects of our business model.
Is our strong cash flow generation.
Last year, we generated cash flow from operations and nearly four hundred million dollars in over three billion dollars since 2007. We've demonstrated our strong commitment to return excess Capital to our shareholders through our app purchases our Outlook indicates that the business will continue to generate strong cash with nearly two billion dollars in cumulative operating cash flow forecasted through 2024.
our first business
First priority is to find ways to the capital back to work in our business. We also will continue to evaluate value accretive Acquisitions to supplement our Plant Organic growth.
Absolute identification of other uses for this cash though. We intend to continue to distribute Capital to our shareholders our board recently approved a new incremental five hundred million dollars a share repurchase authorization May provide additional capacity to continue our share repurchase program.
Definitely the board has approved a 20% increase to our recurring dividend to sixty cents per share affected with the dividend to be paid next month.
Initiating our dividend in 2013. We've grown it at a compound annual growth rate of over 20%
Every now to page thirty-three in our outlook for 2020 our guidance this morning does not include any adjustments for potential effects of the coronavirus situation for the full year. We're targeting sales growth of the six percent range and growth and adjusted earnings per share of 46%
We expect growth.
The sales and earnings will be stronger in the second half of the Year 2020 should be another good year of cash generation as well before casting operating cash flow between $375 and $400 a month.
The first quarter we are forecasting net sales will be comparable to last year and adjusted earnings per share of approximately sixty cents per share.
We're expecting growth in US retail and international and are planning us wholesale sales down somewhat in the first quarter in part due to changes year-over-year and the timing of orders and changes in customer mix.
Royalty income is expected to be down in the first quarter for the same reasons. It declined in the fourth quarter of 2019.
Question a will also weigh on profitability in the first quarter with higher spending on technology new stores and marketing.
planning for stronger growth in sales and earnings in the second quarter
Is my question we will likely face some disruption in our supply chain due to the coronavirus situation, especially as it relates to potential delays in delivery of fall product beginning in the second quarter. This is a very fluid situation. We're still receiving information from our supply chain teams in Asia and from our vendors providing today our best view of our Outlook based on what we know today. Hopefully, we'll have additional information to share with you on our first quarter update in late April.
With these remarks ready?
Take some questions.
Thank you. If you would like to ask a question, please press star followed by the digit one. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment off once again star one and we'll pause for just a moment.
Our first question today will call come from Paul with City.
Thanks guys during the quarter of retail is a little bit stronger than than wholesale and within wholesale you had lower sales to off price. I'm trying to understand the gross margin pressure a little bit more a couple of those things. Both of those things that are in theory Tailwinds to gross margin. So maybe just a little bit more detail on what would be related costs to her gross. Margin in the fourth quarter. How much was impacting you and just maybe quantify, how would you think about that line item in the Box recorders? Thanks.
Sure, probably say overall for gross. Margin. It was a little lower expectations.
For the company in total we did take some additional inventory Provisions in our retail business some of that related to a higher strength provision based on our physical inventory observation in the last few years wage. Do some additional operational complexity to our stores. We think that was what was underneath that that's obviously a real cost of the business. We did make progress in terms of real life pricing and the fourth quarter just not quite to the same level had initially planned within wholesale. There's lots of different dynamics that that that affect gross. Margin. Certainly we had some changes in customer mix I'd say some lower sales to some of our traditionally higher-margin customers in a in the quarter. We had some bad debt expense that we took that sort of an STNA pressure and we did take some additional inventory Provisions related to some fabric liability in the wholesale side of the business. So I'd say the margin in 2020 is good. We're planning expansion and gross. Margin. I'd say near-term in the first quarter. We're planning more comparable gross margins, but we are expanding expecting expansion pack.
Off of the year and that's based on at Mike said we negotiated a favorable product cost for 2020 and we are seeing continued progress in in our pricing initiatives. Will you ask about the terrorists? So we got you taken care of? In fact last year was about four million dollars a million of which happened in the fourth quarter our best estimates. Now the terrorists for 2020 will be around 14 million dollars and about $5 in each of the first two quarters and about three and a half million in the in the third and fourth quarters.
Thanks for just follow up. Maybe I just mentioned the overall kids Market declined 6%
At age zero to ten. Can you talk about what happened on a unit basis? Also if we can maybe talk a little bit about the a job initiative where you're seeing the great success maybe the size of that business for you and and growth in that segment of the kids Market links on the in terms of the market wage. It was a combination of just fewer children in that age range and I would say some portion of about four or five percent. It was it was on price and as we looked at the market data the total Market was down around 6% that baby a girl Market was down more than that. I would say that's inconsistent with the experience we have but that's you know, the market data is the best information. We have I still see say that the market data usage reflects a little bit of a disruption from Toys R Us and Babies R Us going out of business. Those were the big baby apparel retailers and then with Gymboree going out of business.
Think that either you had a lot of pantry loading where people loaded up and had carts full of things that held them over for more than just the uh, immediate near-term outfitting needs. So our our opens that we see that dust settle a bit on that market data and the market stabilizes a bit more in 20 20 second part of your question for was what was the agent? Yes, you know how long the moms and dads have a baby and and we look for that to be a good girl this opportunity for a company. I think we mentioned that we had added several sizes and Carter's and one additional size of Oshkosh that accounted for about a hundred million dollars of new sales in 2019. You asked about success. We're we're having retail our largest grills in 2019 was from the strategy our kids sizes for age 5 to Jun.
real children that was up high single-digits and I reach
Business last year, so good growth there. And then in wholesale the age up strategies more of a toddler strategy. We're up up 10% in sales and our toddler sizes for the wholesale business last year. We implemented a plan to help them capture some of that because we are the market leader and toddler we added Tyler and Amazon about a year-and-half ago. We had a tire sizes with our child of mine Brandon Walmart last fall and we're expanding doors this spring and then just this spring we've added toddler with our just one you Brandon Target including new swim category. So 2020 will be the first time to all exclusive Brands will have table replacement and we're excited about the growth opportunity as a linchpin for the age of strategy.
Thanks very much.
An extra move to David Buckley with Bank of America. Good morning. Thanks for taking my question. So the two to 3% sales growth guidance for the year. I sure about the contribution from retail and wholesale and then wholesale specifically how are you planning? The first half sales? It sounds like there's a timing shift happening in 1 Q
Planning wholesale shipments in in the first quarter down but then up again in in second quarter and then low single-digit growth for for the full year. I'd say we're also planning low single-digit growth in in retail office at single-digit growth in the international business work for 2020.
Okay, and then what gives you confidence in the sales and EPS acceleration after the first quarter?
I think the the second half of the year as our business has has changed in wholesale has become a little bit smaller piece of the pie. We're we're a bit more of a direct-to-consumer business than we've been historically some more of that business is done in the second half of the years at the margin Rich part of the business. We think we will have some of the progress and and fruits of our labor around pricing initiatives as well as uh inventory productivity if there's also an forward benefit to share repurchase it comes later in the year which helps a TPS metric
Okay. Thank you very much. Welcome.
Next we'll hear from Ford town with Wells Fargo.
Hi, good morning. Everyone to questions the first one maybe from Mike on the supply chain. So I appreciate all the color and totally understand that your visibility is very limited right now, but I'm trying to understand the way things were to worsen or or just not improve. The next time we hear from you is the risk more on the on the on the side of the there'd be order cancellations and and revenue risk. And and is it is it out for that or is it more a function of you know, your average unit costs and freight costs of shipping and maybe you know things that were on boats go on planes and it's more of a cost issue. I'm just kind of curious how to think about what what what the risks are when we took out that it's the former If the product comes late especially in a tougher retail environment. There's always a a risk that some of our wholesale customers will say we know that no longer need the units think it's important for you to understand less than 15% of our units are being currently sourced from from China and every year for years. There was always a question
What was the retention of the factory work?
After the chiney Chinese New New Year's holiday and you know, everybody was expected back around the the, you know, the 10th of February and because of travel restrictions people are got back later. So we're we're anticipating right now that production will be delayed some portion of three weeks for more and our suppliers are working through it. We're in close contact with all of our suppliers and depending on the different locations, you know, people are back and working and northern part of China. People are still slowly getting back to work with with unknown today is what I would say is the ripple effect. So a lot of our suppliers really rely on their fabric suppliers, we don't Source fabric, you know, we've we're we're well, we we sort of finished product and a lot of the textile mills are in spread throughout China including northern China and those those areas are more affected than textile mills and in southern, Georgia.
so what's unknown is whether or not they'll be able to get the
Fabric from this Flyers. They had planned to get it from or whether or not they have to go to other parts of the world including including India to get the fabric set that yet is unknown. The other thing is just we're anticipating that the likely be support congestions as everybody catches up and gets product to the docks that there may be some congestion there. So we've got good people thankfully unlike the Cod this years ago. We've got four hundred of our own people in in Asia Cambodia Vietnam Hong Kong are working closely with our supplier. So we'll have very very good visibility to how everybody is back up and running. Yeah, we currently have over six hundred million dollars of inventory. We have millions of units coming in every week from other parts of Asia the things that we're doing to mitigate the risk, we're bypassing China A lot of times we'll we'll consolidate product in China, but given given the disruption in China. We're we're happy.
One of the products were sent directly to the United States from Vietnam Cambodia Bangladesh.
In other parts of Asia are also evaluating the more time sensitive product categories. Thankfully all of our Easter dressing is here in the United States Easter dresses sell a lot better before or after Easter and we don't expect the shares the shelves be bear any time this year. We got plenty of inventory to keep us busy as best. We can tell we might see some impact late second-quarter early third-quarter on some of our early fall deliveries. And so we'll keep an eye on that will have better visibility to Thursday and in April. And again, we're leveraging our teams in based in Cambodia and Vietnam supplement the good work being done in Hong Kong so that our product development practice for the holidays the year-end holidays stays on schedule. So bottom line. I think it's reasonable to assume there's going to be some disruption in the flow of goods. It is just too early to quantify the impact off.
Of the delays and and we'll we'll share more with you in April.
got
And then it's a quick follow-up for Richard. Well, I guess really quickly. I'm sorry if I missed it. Could you quantify the 53rd week for us? And then the more important question is just when we talk about e cam on overtime and he calm profitability, you know, I think you mentioned in your your multi-year plan. You expect e-com to go to low forties from I think low thirties today. It's gone from low twenties to low 30s. But as you've done that with the overall margin at retail, I think is down about a hundred basis points, but and I know you've talked about being you know, 20% plus margin over the years. Can you give us an update where we are today with profitability? Cuz that mixes in and of itself should drive, you know, margin expansion for retail and for gross margin, but I feel like we haven't been seeing that so I'm just kind of curious what's been happening. And then what the Outlook is as that makes continue to go forward.
Sure, as it relates to to eCommerce, I'll take that that that first we have an extraordinarily profitable e-commerce business that the margins are north of 20% They have come down years with what we've seen in the market place around consumer expectations for free and fast shipping that's provided a fair amount of pressure on on that on that operating profit for e-commerce. Our models show that we will continue to be able to to improve e-commerce profitability over time. We mentioned the initiative to to deliver product from stores. We think that is a bit of an unlock as it relates to getting product particularly further wage was further away from our core Distribution Center here here in Georgia. So I'm optimistic that there are opportunities for us to continue to improve the profitability of e-commerce that team has done a good job in terms of reducing the amount of excess inventory their inventory buys it become more accurate over time. We continue to enjoy extraordinarily low return rate which helps the profitability of our business on online relative to other other retailers. I would say that God
pressure that we've had in the retail segment
Over the last number of years has been more based in the stores and the fact that we have not been able to drive a consistent store in in in the brick-and-mortar stores. There's a number of initiatives on that side of things as well. We have been improving the quality of that portfolio. So some of the older less productive stores which which have been a drag on on the operating performance of the segment those are going to start to fall out of the base. So I'm optimistic on on the off the outlook for margin in the retail segment. And that's that's kind of the character of the complexion underneath as it relates to the 53rd week. It's it's the week that we packed as the week after Christmas the estimate for the top line or I'd say in a range of twenty-five to Thirty million dollars. It's not a particularly profitable profitable week as we have measured it or or forecasted it largely a clearance week in our retail channel so long it might it might represent a marginal amount of profitability call it break even to one or two million dollars of operating income. That's that's kind of how we sculpted at this point.
Thanks guys.
We'll move on to Susan Anderson with B Riley FBR.
Good morning. Nice job in 2019. I was wondering if you could talk a little bit more about pricing and product cost for 2020. It sounds like maybe you expect a little bit more pricing, but then flash product costs for 20 20 and then also
So it sounds like maybe you're starting to close the gap on those lower-margin channels or the exclusive Brands. Maybe if you could talk a little bit about the progress you're seeing there and expectation 5020.
As it relates to product. This is Mike said we we did have favorable negotiations with our vendors in for the 2020 assortments our supply chain team did a great job in in taking advantage of of the the marketplace situation and the growth that we bring to to those vendors that we are we have negotiated lower product costs for 2020 that mixes in based on the the products that we're sorting into slightly higher product key to the apartment itself, but for like the light product they are down I'd say in the low single-digit range. We are we are planning for more Improvement in pricing still modest though. We're not we're not talking, you know, ten or 20% increase. In fact, we're talking a similar low single-digit progress which which with the the favorability in in product costs that we're expecting kind of widens out that that nice that nice spread between pricing and and product cause we have bought inventory. I would say more conservatively in 2020 particularly in the second half of the year. So I think that will remove
One of our historical pressure that we sometimes have when we get backed up with them.
Right. So we we followed some of the successful practices that we're seeing on the part of some of our wholesale customers where they're buying inventory more more conservatively looking to get better cell through that are realized pricing has kind of how we're thinking about it off. I think a key point on that one of the key initiatives of this hundred million dollar productivity initiatives is pricing its price realizations not taking prices up on the same product we sold last year, but it's improved price realization through better inventory management and and the high we have a we sell nearly 500 million units a year. There's probably probably sorts of billion bucks a lot of our multipacks. There's five hundred million selling selling units, like including multipacks nickels and dimes for us equate to twenty-five to fifty million dollars of improve ability. So the focus is buying inventory more conservatively reducing scuse focusing on fewer better Styles co-branding all of our stores to the consumer.
Great experience convenient experience shopping for the two best brand names known in in kids apparel. So that's our Focus improving price realization by
A nickel or more that's nickels and dimes are twenty-five to fifty million dollars in Improvement and profitability. That's a key Initiative for stone forward. So less product of the clearance rack at the back of the store bought a great that's helpful. And then also just kind of where you're at with improving the margin on some of those exclusive Brands and kind of closing the Gap with some of those other higher-margin channel. That's a we've made made very good progress in improving the the margin structure of simple Joys. That's the one that had lagged because it was a newer business for us. We've been in business to my comments with targeting apartment nearly twenty years. So those businesses have significantly more size and scale than than simple Joys does but that the simple Joys team has done a terrific job and improving the profitability of simple Joys exclusive brands in in total or a very margin Ridge business for us. We've been pleased with that.
Great. Thanks so much. Good luck this year. Thank you.
Holler about where you see sg&a coming in at sounds like there's some these STNA Investments that you're talking about. Maybe if you can give us a little bit more color on those and how you cfdna coming in wondering too with the pressures there.
I think we have modest growth in sg&a that we're planning for for the first quarter and it does reflect some of the Investments that that we've been making in technology some of those new birthday parties have now been put in service. So we now have some higher depreciation expense. That's that's coming through We are continuing to spend on our website and our mobile experience in that channel, which we think is really important tracking those consumers. We're spending on some of the new Tools around inventory management and assortment management of the digital design tool that that Mike referenced we're spending on information security wage, which is an important initiative obviously for for every public company to to invest in and then I'd say there's a few things more more timing related terms of timing of spend for some marketing and store based programs, which is falling a bit more into q1 than perhaps a little bit later in the air previously, but we do expect to see the benefits of our productivity initiatives over the course of 2019 that will help offset some of the flow through of the higher investment spending.
Next we'll hear from John Maurice with d a Davidson. Thanks. Good morning. Everybody. Congratulations on a great year.
and then quick
Follow up on I think you had mentioned that you had fallen a little bit short in when I think we were talking about sort of gross margin in Q4 had fallen a little bit short in terms of pricing capturing for any any reasons behind that in particular, you know, just kind of the Slowdown that you talked about in retail or sort of off-color there. Well, I would say that the business the business came late for us. So I think the Black Friday selling. Was perhaps not as robust as we had thought so the consumer continues to Chef close during the holiday. That's what we experienced this year. So I'd say in the US retail business and in Canada, we perhaps got a bit more promotional than we had originally anticipated in that had an effect on on the gross margin line as as did some of the additional images that I've been I mentioned we did make progress in real life pricing. It just was not to the extent that we had originally planned.
Great. Thank you.
Sebring any additional or closing remarks very much. Well, thank you all for joining us on the call this morning. We look forward updating again on our progress in April. Goodbye.
And that will conclude today's call. We thank you for your participation.
off
And that will conclude today's question-and-answer session at this time. I would like to turn the call back over to mr.