Q3 2020 Skechers USA Inc Earnings Call
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I would now like to turn the conference over to Skechers. Please go ahead.
Thank you everyone for joining us on Skechers conference call today, I will now read the safe Harbor statement.
Certain statements contained herein, including without limitation statements addressing the beliefs plans objectives estimates or expectations of the company or future results or Vince may constitute forward looking statements that involve.
Risks and uncertainties.
Specifically the COVID-19 pandemic has had and its currently having a significant impact on the company's business.
Until conditions cash flow and results of operations.
Such forward looking statements with respect to the COVID-19 pandemic include without limitation. The Companys plans in response to the pandemic at this time there is significant uncertainty about the duration and extent of impact of the COVID-19 pandemic and dynamic nature of these circumstances means that what is said on this call can change at any time and as.
The results actual results could differ materially from those contemplated by such forward looking statements additional forward looking statements involve known and unknown risks, including but not limited to global national and local economic business and market conditions in general and specifically as they apply to the retail industry and the company that can be no assurance that the x.
Future results performance or achievements expressed or implied by any of our forward looking statements will occur.
There is a forward looking statements are encouraged to review the Companys filings with the Securities and Exchange Commission, including the most recent annual report on form 10-K quarterly reports on form 10-Q current reports on form 8-K, and all other reports filed with the FCC as required by Federal Securities Law for a description of all other significant.
Factors that may affect the company's business financial conditions cash flows and results of operations.
With that I would like to turn the call over to Skechers, Chief Operating Officer, David Weinberg, and Chief Financial Officer, John Daniel Moore.
David.
Thank you for joining us today for our third quarter 2020 conference call I Hope you your colleagues and loved ones are healthy and staying safe.
The pandemic continues to impact business throughout the world, but skechers has seen meaningful improvements from the second quarter, including a return to growth in many markets third.
Third quarter sales were $1.3 billion, which was a 3.9% decrease from the prior year, but a 78.3% increase over the second quarter, a significant accomplishment and an encouraging sign of the health of our brands.
Growth came from each of our segments as the retail environment steadily improve with our wholesale channel stabilizing and in several instances growing.
We believe our third quarter results speak to the relevance of our product resilience of our company's distribution model and our plan to emerge from the pandemic even stronger than before.
In these uncertain times when people are predominantly working from home and more focused on their wellbeing.
Tumors desired comfort and we have the products they want and the athletic and casual footwear and apparel with a focus on comfort is precisely in our wheelhouse.
In our domestic wholesale business growth came primarily from our adult athletic casual and sandal footwear, along with single digit improvements in our mens and womens collections, we experienced double digit improvement in our kids footwear, which is particularly notable given the absence of a traditional back to school selling season and many chose.
Still learning remotely.
Our domestic wholesale business return to growth in the quarter.
Rising 6.3%, a result of pent up demand and the relevance of our product.
We saw similar sales trends for our comfortable footwear and our other business channels with a return to growth in many markets and quarterly improvements in our own direct to consumer business. The more than 3770, Skechers stores E commerce sites and availability in many of the leading retailers worldwide gave us the opportunity to.
Fill demand and satisfy customers as the markets reopened.
The pace of recovery has different across geographies, but when markets are stable and opened skechers experienced solid growth in sales our joint venture business was up 14% led by an increase of 23.9% in China, where our ecommerce business was particularly strong.
Our European subsidiaries were up 18.1% overall led by fantastic growth in Germany, as well as in France, and central Eastern Europe.
Our distributor business was down double digits due to ongoing store closures in several several markets, including our largest distributor which covers the middle East. However, several markets recorded positive sales, including Australia, New Zealand and Scandinavia among others.
By the end of the third quarter, all but a few skechers retail locations were open although many were operating with limited hours in the quarter. We also opened 24 pre covance planned stores, including flagship locations on route deliverability that Premier shopping Street in France, Oxford Circus in London and.
Can do group and Tokyo, and two stores in Colombia at another 19 domestic and international locations. One store closed in the quarter. We plan to open several key locations in the fourth quarter, including our first in Munich and Berlin.
In the third quarter, our direct to consumer business decreased 16.9% as consumer traffic remained challenged mostly a tourist and destination concept stores as well as continued store closures in some markets. However, our domestic ecommerce business continue to grow significantly even as our retail locations reopened.
Increasing 172.1% in the quarter.
That said, we showed sequential improvement in our brick and mortar stores, particularly in our big box locations throughout the third quarter and from the fourth from the second quarter.
We continue to invest in our direct to consumer experience during the quarter. We began a full scale update to our point of sale system and are now connected with our ecommerce channel, allowing consumers to shop, our product online and pickup in one of our more than 500, U.S. locations either in store or curb side.
We believe these investments to fully integrate our physical and digital ecosystems into one omnichannel experience will drive sales of shopping online has become a preference and a growing necessity for many consumers.
In addition to the 24 company owned stores 189, New third party Skechers stores opened around the world and 48 closed, bringing our total company owned third party store count to 3770 worldwide at quarter end.
To support the reopening of our business in markets around the world, we strategically heightened our advertising efforts continuing with the digital focus while adding in store outdoor and new television campaigns for our comfort footwear, including one with baseball Great and World series Champion Clayton Kershaw, who played this week and custom Skechers clean.
Yes.
We believe the steps, we have taken to protect and improve our business to reopen stronger than ever is evidenced in the growth. We have achieved in many markets, including most notably our domestic wholesale channel.
As we strive to continue this positive trend worldwide. We're further enhancing our infrastructure as well as our digital business, our new one and a half million square foot, China distribution center remains on track.
And we are working diligently on the expansion of our North American distribution Center, which we expect to be Cleated completed in the second half of 2021, bringing our facility to 2.6 million square feet.
We also completed the expansion of our European distribution center, bringing it to 2.1 million square feet and expect to open our first UK based distribution center by the end of this year also.
Also we have opened new distribution centers in Panama, and Colombia, all to pave the way for growth as well as increased E. Commerce business. We are on track to upgrade our ecommerce platforms in Canada, Europe, South America, Japan and India.
Further as we continue to build our logistics centers for growth and as we experienced the pent up demand for our products. We are ramping up our supply chain with increased factory production capacity to be in line with our future product needs now I'd like to turn the call over to John.
Thank you David before I start I would like to once again, thank our skechers team worldwide for the resilience they've demonstrated throughout these turbulent times.
Their unwavering dedication has positioned skechers for the recovery, we are beginning to see in our business.
This quarter was a stark improvement over last quarter as sales improved in each of our segments and total sales grew 78.3%.
Were contingent conditions return to a degree of normalcy, our business responded with growth reminiscent of prior years.
Where pandemic restrictions persisted our businesses, whether the situation and improved steadily.
Our sales were down only 3.9% year over year, which we view as a major accomplishment.
As conditions normalize further worldwide. We are confident that skechers will return to growth because our distinctive value proposition continues to resonate with consumers and our core casual athletic styles are on trend despite.
Despite the current environment, we continue to invest for growth with a focus on our direct to consumer capabilities and global distribution infrastructure. We're confident these investments will continue to propel our brand by allowing us to scale quicker and meet growing worldwide demand.
Now, let's turn to our third quarter results.
Sales in the quarter totaled $1.3 billion, a decrease of $53.1 million or 3.9% from the prior year quarter on a constant currency basis sales decreased $65.6 million or 4.8%.
Domestic wholesale sales increased 6.3% or $18.8 million fueled by consumer demand for multiple categories across mens womens and kids.
International wholesale sales decreased 0.5% in the quarter, our distributor business decreased 43.7% in the quarter, reflecting continuing challenges in distributor led markets, but our subsidiaries were up 1.5% and our joint ventures grew 14%.
China sales grew 23.9% for the quarter as demand rebounded, especially in E commerce channels.
Direct to consumer sales decreased 16.9%. The result of a 15, 3.3% decrease domestically and a 19.6% decrease internationally, reflecting both challenged consumer traffic trends trends and the impact of temporary store closures. However, these.
Results were partially offset by another robust increase in our domestic E commerce business of 172.1%.
Gross profit was $625.1 million down 21 $28 million compared to the prior year on lower sales volumes.
Gross margin was relatively flat compared with the prior year as increased promotional activity in our joint ventures was nearly offset by a favorable mix shift in our online and international sales.
Total operating expenses increased by 24.3 million or 4.7% to $536.2 million in the quarter selling.
Selling expenses decreased by $11.6 million or 11.9% to 85.9 million, primarily due to lower global advertising and trade show expenditures.
General and administrative expenses increased by $35.9 million or 8.7% to $450.3 million, which was primarily the result of an $18.2 million onetime noncash compensation charge related to the cancellation of restricted share grants.
Associated with the recent legal settlement as well as volume driven increases in warehouse and distribution expenses for both our international and domestic businesses.
Earnings from operations was $92.1 million versus prior year earnings of $147.4 million net.
Net income was $64.3 million or 41 cents per diluted share on 155 million diluted shares outstanding. However, adjusting for the onetime noncash compensation charge previously mentioned net income was $82.6 million or 53 cents per diluted share. These come.
Fair to prior year net income of $103.1 million or 67 cents per diluted share on 154 million diluted shares outstanding.
Our effective income tax rate for the quarter decreased to 15.4% from 15.8% in the prior year.
And now turning to our balance sheet, we ended the quarter with $1.5 billion in cash cash equivalents and investments, which was an increase of $468.2 million or 45.4% from December 31, 2019, primarily reflecting the drawdown of our senior unsecured credit facility.
Early in the first quarter.
Trade accounts receivable receivable at quarter end or $709 million, an increase of 9.9% or $63.6 million from December 31, 2019, and an increase of 7% or $46.6 million from December Thirtyth 2019, the increase in accounts receivable.
Our goal was primarily due to higher wholesale sales, both domestically and in international markets.
Total inventory was $1.05 billion, a decrease of 1.5% or 16.5 million from December 31, 2019, but an increase of 18.3% or $163 million from the September Thirtyth 2019, the increase in year.
Over year inventory levels is largely attributable to increases in our international markets, especially in preparation for singles day in China.
Domestic inventory levels declined year over year.
Overall, we feel confident in our inventory levels and continue to actively manage supply and demand aiming to position the business constructively for next year.
Total debt, including both current and long term portions was $812 million compared to $121.2 million at December 31, 2019. The increase primarily reflects the drawdown of our senior unsecured credit facility in the first quarter.
Capital expenditures for the third quarter were 63.6 million of which $24.6 million related to the expansion of our domestic distribution COVID-19.2 million related to new store openings and remodels worldwide as well as a new point of sales system and $11.4 million.
Slated to our new corporate offices in the United States.
Our capital investments remain focused on our strategic priorities enhancing our direct to consumer relationships and augmenting our global distribution infrastructure. This quarter, we launched several digital solutions, including our new website and to mobile applications BOPUS in both Pac capabilities in the mud.
We already have our domestic stores and a refresh of our in store point of sales systems.
We also continued to make progress despite the pandemic on our new distribution center in China, and expansions to our North American South American and European facilities.
We have also begun the process of opening a new logistics center in the United Kingdom in anticipation of a post Brexit environment.
We now expect total capital expenditures for the remainder of the year to be between 100, and 125 million inclusive of the aforementioned projects.
Overall, we are pleased with our third quarter performance and remain confident that Skechers will continue to successfully navigate this dynamic environment. However.
However, we will not be providing revenue and earnings guidance this quarter as the environment remains too unpredictable to forecast reliably.
And now I will turn the call over to David for closing remarks.
Thank you John as I discussed at the outset of this call. We are very pleased with our third quarter performance at only a 3.9% decrease from the same period last year, which was also our highest quarterly sales in our history and our ability to remain agile and drive sales during the pandemic.
We experienced meaningful improvement from the second quarter in all channels of our business, especially in our domestic wholesale which grew mid single digits. Additionally, our wholesale business in many other markets was up single and double digits, our direct to consumer sales improved since the second quarter and backlogs are up in many key countries, including the and I.
The states.
We remain very aware of the global health crisis, yet we remain confident in our actions and the strength of our brand and business as countries reopened and consumer confidence grows.
The diversity of our distribution channels broad based consumer demographics in our exceptionally strong balance sheet and ample liquidity have been especially beneficial to our success during this challenging year weve.
We believe consumers will continue to gravitate toward comfort in their lives and our athletic casual product at a reasonable price will continue to have worldwide appeal.
See many opportunities for near and long term growth and believe we will be an even stronger position in the future now I would like to turn the call over to the operator for questions.
Thank you.
We will now begin the question and answer session.
Skechers request that analysts limit themselves to one question and one follow up question only to allow all analysts have the opportunity to ask the question.
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We will pause for a moment as callers during the Q.
Yes.
The first question is from Jay sole of the EPS. Please go ahead.
Great. Thanks, so much.
I ask about how the back to school business trended in the United States in the quarter and sort of how that flowed into September can you give us idea of what what the what the U.S. business was like in August and September and maybe just tell us if that exit rate September sort of continued into October like how you see that business trending from here.
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Basically there was no back to school defined season. So what we saw was more equal distribution between July August and September.
Because of that we had slightly lower comps in August and slightly higher comps in September simply because the comps in August one higher thats the traditional back to school, but we saw strength.
Coming through we closed September the comps in September were better than the comps for the quarter or the individual month of August so we seem to be improving certainly on a comp basis and our business is holding up in October as far as our.
Our retail this concern and as far as demand, we see outside of our own retail channel.
Do you think prime day has affected the comp in October or is that sort of just all.
Part of just the improvement that you've seen.
In the month.
It'd be difficult to say it was based on one thing will one day, we've seen this improvement coming since we reopened basically in may.
And going into June we've gotten progressively stronger more in demand as as people.
I'm more interested in buying as we open up more retail locations and our customers open up retail locations and we signed that around the world. So I doubt it has to do with a single day.
Got it and then maybe just one quick one on SDMA.
How much did any actions you took in the quarter due to the pandemic impact as generic specifically.
Well I mean I can be the major driver of the SGN a increases we mentioned is this.
This non cash one time charge, if you look at that and take that out as we do because as a non operational charge to the business. You can see we're actively mitigating where we can again sales decreases by addressing DNA on the flip side do you have other markets that are that are doing quite well, we mentioned the growth in China.
Over 20% and that that needs to be fed by some additional operating expenses. So we're continuing to aggressively manage DNA, but where you don't want to starve any business that is beginning to recover and we want to make sure that in the businesses that still remain a bit challenged in particular those that are consumer traffic.
Ended in.
In malls or in tourist opportunities that they still have the chance to operate well. So we continue to manage it but we don't want to starve any business that is recovering and we want to continue to feed the recovery of the businesses that are starting to make their way back.
Understood. Thank you so much.
The next question is from investors.
I assume that scope of Exane BNP Paribas.
Please go ahead.
Good afternoon, Thanks for taking my question.
John I think you mentioned that international wholesale subsidiaries were up about 2% and then jvs were up about 14% for the quarter.
I know, you're not giving guidance, but high level, how do we think about.
Those two line items should we assume that the sequentially improve in the fourth quarter.
What what you're really seeing develop as a tale of two different types of of markets long you have markets that have largely stabilized and come back to some degree of normal activity.
In those markets, we're seeing the business respond quite nicely. We're seeing growth. We mentioned, we mentioned China other strength in Europe, we have a couple of markets in in Europe that are up tremendously well and then you have other does that continue to struggle with the effects of the pandemic and and usually government intervention related there too.
And those markets Thats, where the brand still hasn't had a chance to get back to normal I mean to the extent the current environment remains static I think you can expect more of what we saw in this quarter or maybe maybe down a little depending on individual markets, but I think the broader message we share is within.
Get back to normal the brand gets back to growth much like it was growing last year.
When the brand is restricted because the pandemic effects are having an impact on consumer traffic or other aspects of the business, that's that's where things aren't yet back to normal. So it really does depend upon the effects of the pandemic, but when things get back to normal we couldn't be happier with the rate at which we're getting back to growth.
Like like China, like Europe, and and a handful of other markets as well.
Very helpful and then international wholesale gross margin down.
Down just a little bit 30 brands.
What was driving those up promos in China specifically.
Other regions and how do we think about again I know, you're not giving guidance to the high level. How do you think about the gross margin puts and takes.
Over the next quarter.
You mean, the first thing I mentioned is we've we're incredibly pleased with the growth margins, we mitigate evidenced two things one one our discipline on pricing and approaching the market even in these challenging times and you're still and you're still seeing that manifest in the results that you're seeing us put up particularly in E commerce.
The other aspect of the gross margin story right now is that in some markets like China.
There has been a little bit more promotional activity, but thats been accompanied with a significant increase in volume and a bit of a channel shift ecommerce is doing very very well in China.
Other channels are doing well, but not quite up to that level. So you're seeing a little bit of a mix shift and in China and you tend to see a little bit more promotional activity online as an inducement in part because they are sales cycles tend to evolve around promotional days something like single day, but other elements there too so.
The reality is we feel really good about the gross margin overall did see a little bit more promotional activity in Asia, but that was more than offset by almost entirely offset by the mix benefit we got from from having more international and more E commerce within the retail footprint.
Very helpful. Thank you very much and then maybe if I can squeeze one more in.
Non competition charged by the Gionee cleaning was up about 89.
John was that was that entirely driven by this warehouse and distribution expense.
And then is that really that that one quarter effect was do we think about that for the fourth quarter due to capacity constraints.
Yes, So X excluding the one time charge is really volume driven.
Costs in DNA and remember when we put our distribution costs into DNA not not in cost sales like some others. So really the best way to think about those are volume driven changes.
Theres a lot of offset working against that set to minimize the volume driven changes.
But thats largely how I would think about it.
And it really depends on the mix of business to be honest with you in that instance, it.
It was it was focused on.
On Asia, where we saw significant growth and on ecommerce being us being a big step up for us.
Very helpful. Thank you very much.
Sure.
The next question is from Kimberly Greenberger of Morgan Stanley. Please go ahead.
Great. Thank you, so much and really nice quarter here.
The upside surprise, both domestically and in international wholesale revenue was.
Theory out really substantial particularly relative to our estimates and I'm wondering is.
Is there any help.
Catch up phenomenon from the depressed revenue growth rate in the June quarter was there any sort of catch up that help to the September quarter or was this all organic original third quarter orders that you would expect to be able to laugh when.
When we get to third quarter next year. Thanks.
Well, we always expect to lap it when we get to next year, that's not a problem and I don't know if you can talk in this year in terms of organic growth.
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It was a catch up from the point of view that what was take not taken in second quarter became high demand in third quarter.
So we did have that catch up effect there with us when the stores were closed those difficulty getting an inventory there and as they opened up what we saw was an increased demand. It's a matter of fact, probably a shortage.
Of where we stood with our inventory and what we could process through I mean, as John mentioned, we were actually down in inventory in the United States year over year that is all that catch up process and getting through and the high demand of.
For our inventory so.
Yes, it will have the mindset that our growth could have been significantly higher. This year. We started this year going on to a significantly higher growth pattern, we hit the second quarter with the pandemic, which closed down most of the world. The only places we had positive was China is starting to pick up and then when the world came back in those places that.
After open in some places open later, which is why we still 50 million behind for the quarter, but we had great catch up and we do feel in those areas and.
Even from the question that came before we are set up for significant growth in those places that are growing around the world for the fourth quarter as well as the third quarter places like China and Europe. Their backlogs there momentums indicate that we will continue to grow and that also includes the United States. The only caveat I would put in there at this particular.
Im obviously is there is a resurgence of the pandemic some in Europe some in the us.
But none in China, so to speak so those are the only things to watch we havent seen anything it is obviously just starting.
But they're all closed down in Europe, which is a very strong market. We do feel will you will make it up somewhere along the line as we get into Q1, because the demand has been that strong and we're chasing dates were actually increasing our debt capacity for production in order to meet all the demand we're seeing around the world, which includes some countries that are actually.
Really down but are showing increased volume as their countries open up some so when you think we are in a positive mode that we will power through and and depending on how the pandemic goes which is a serious question, we'll be ready for significant growth as we get into 2021 and if it's not in the first quarter.
Certainly, we'll as we continue through the year and things open up more.
Great that's excellent and that brings me to my follow up which is on inventory. It sounds like you are chasing inventory here into the fourth quarter.
And I am looking at the total inventory balance I think its up 18%. So it looks like in aggregate, you've got inventory, but that may be it.
Lacking either in certain geographies. So I am just curious do you feel like you'll be able to yet.
Appropriate product to the correct regions in order to see your business or is there some risk perhaps that inventory shortages could hold back revenue in the fourth quarter and then just in aggregate how do you feel about the 18%.
Growth in inventory here at the end of the quarter. Thanks, so much.
I think you have to look at where the inventory is I guess the answer to the first part of the question is yes, we feel we will be able to catch everything we see now according to demand of course, there is always in our case, a possibility that demand will grow even faster and we will still be chasing what that would be a high class problem to have if you look at the inventory some of this inventory right.
And it's up 18%, Jeff look where it is as John said, it's in China, and its going singles day, and you have to keep in mind as we build China through online.
At a faster pace than anything else. It does require carrying more inventory being a retailer by its design is more inventory than a wholesaler. So you have to carry more inventory prepare sold and thats. What we are starting to build and we will start building I think in the west as well as our stores open. So we think we're in very good shape, what our inventory.
We probably could use a little more but given the uncertainty it's better to be in the position. We're in but we certainly will have enough to get the forecast we have going into first quarter and hopefully that will be somewhat short and we will continue to chase. It as we go into the back half of the year, but I think everybody here is quite happy with where we sit what we own and what we have.
Around the world.
And rightly so congratulations thanks, so much thank you accurately.
The next question is from Omar Saad of Evercore. Please go ahead.
Hey, Thanks, good afternoon nice job this quarter.
I'd really like you guys talk a little bit more about the wholesale channel and obviously I think outperformed relative to our expectations and others. Maybe you could talk about what's really driving that strength there as that reorders that a lack of inventories that their dot com business wholesale dot com businesses.
And how you feel about that buyer and how you feel or how we should think about that balance between growth and wholesale DTC ecommerce, what's obviously, you're putting a lot more.
Emphasis and resources behind these days and then also.
Quickly would love to know if you're seeing any impact on your business is anywhere around the world. We are seeing the latest resurgence is or close downs I know some markets in Europe are starting to shutter that got I'm wondering if you're seeing an effect from that or if you're largely pipeline through thanks.
Well.
I'll take the first let me tell you that as far as I'm concerned.
The wholesale channel all those points you broke up well brought up or yes, yes, and yes, we have seeing online we have seen demand we have seen growth in the inventory demand, but we don't have the pressure at least I don't that we're catching the inventory need and that it would slow down anytime in the future. The turn is still there for all our customers that are looking and it certainly.
His fill in as certainly as lack of product and it certainly is.
The demand for our products on a very broad based here in the U.S I think I mentioned in the last one John can add his but we haven't seen anything yet in Europe, it's more.
An emotional think when we talk to our our people in Europe in the fear of what could happen in such a high demand area that they are in I mean, you see something in Ireland, and France, which have closed down completely in the other countries. We havent seen a decrease actually John and I were talking this morning, it's been surprising over the last few days on Continental Europe, we havent seen any.
The deterioration in our retail sales are comp, which we would have anticipated.
Just from people starting to hunker down so im not sure its too early to tell I am sure if they close and completely obviously, we will have significant impact.
But right now it's too early just started.
Yes, Thanks, gentlemen, I would I would echo that and then just reemphasize on the on the wholesale side.
Not like this was one or two customers, we actually saw abroad.
Improvements and broad improvement that category as we mentioned in mens womens and kids were up.
And that's a that's a really good sign that the product is working our arch fit product our Max cushioning a lot of our key product FFO guidance for the year are really resonating with consumers both in our own retail, but also with our retail partners in wholesale and thats, showing really well and the demand that we're seeing.
Being in the wholesale channel.
Thanks, John Thanks, David.
Thank you thanks.
The next question is from Chris Svezia of Wedbush. Please go ahead.
Good afternoon, gentlemen, thanks for taking my question any growth and.
Nice stuff.
I want to ask about your wholesale.
So I guess.
Are you anticipating that you can build on the momentum that you saw in Q3, I guess more specifically does the order book represents something that you can look at Q4 and still see some level of growth or is that now you sold in the sell through and then if you touch a reorder thats what determines Q.
For I'm, just trying to understand can you build on the momentum in Q3 to generate.
Im level growth in Q4 or is it you got to wait and see sell through product inventory that sold in and rapid customer yours, how do I, how do I think about that.
Well right now we sold in and I do believe that we are checking well settlement sure you'll do your channel checks as you go through but I haven't seen that there's any back up so I would anticipate borrowing as in the last answer any changes to the TD.
Kogut environment as it is in the hole, we would anticipate.
More I think more people still even though we've grown and is growing the creating demand with their sell throughs. We create still created a situation where they are trying to be careful on what they order because no one knows whats going forward. So anything barring an increase in the cobot and closing down which is certainly always possible I would.
Say, there's still under bought.
Q4, and Q1, and we could get an additional hit for Reorders for that just as we did in Q3, because there were so conservative that comes out in our brands happened to perform that much better. So I'm still anticipating that it will continue to happen and that we're selling through call quite well.
Wherever we see it but that caveat and that's the reason why we're not giving guidance.
Because it makes John nervous with all those cloud but.
Still looking good feeling good and expect the it down but what you do have to keep an eye on whats going on obviously through the whole place you know there is a case to be made that if.
We could ever get this money out of Congress it will make for a great three.
Retail environment is certainly in the United States.
Based on objects in the market quite frankly, we see it is.
One of our couple international brands performing at that level and the market certainly not all others are so we're very encouraged by just the overall performance, but also the relative performance to what we're seeing in other brand.
And we're seeing good growth in the <unk>.
Cobra who'd you, usually a week month or a smaller months. So the conscience, certainly easier because everybody's gearing up for a single state, but they've held up pretty well for October.
So we have I hope that it continues to pound through.
Okay sounds good.
I believe it they're all the best.
Thanks, Chris.
The next question is from Susan Anderson, some be Ryan Lee.
Please go ahead.
Hey, Michael.
A retail business.
A little bit more tolerable on kind of a.
Missed it let percent of the fleets now open against renting are running on.
Strain hours and then also are you seeing sequential improvement there in the fourth quarter. Obviously it continues to the weakest part of the business, but just curious.
How long do you think it's going to take for that to recover.
Yes, I think a couple of things to keep in mind on that question first is when we talk about our retail estate, we're talking about a global estate. So you really have to keep in mind the make up of that domestically. What we're seeing is really good performance and stores that are not dependent upon either mall.
Based traffic or tourism those stores are doing doing very well, we're very pleased in the quarter. We actually had a couple of handfuls of stores that remained shuttered even domestically because of restriction on operations in mall based environments.
In Europe, we tended to see pretty good performance across.
Across the state and when you can not back to normal, but but very encouraging trend.
But they're also parts of South America that we're almost completely closed for.
The majority of the quarter. So it's really a mixed bag I think what we are generally observing is that it continues to get better as the situation normalizes, even with some restrictions because the vast majority of stores are still operating with some hourly restrictions.
Those that are dependent upon tourism mall based traffic are a little bit behind stores that are on a standalone basis. The good news for US is that we have for awhile been transitioning too.
Box warehouse style stores that are free standing.
Solutions.
And those those are seeing the best performance overall so.
It continues to improve which is great.
I'll see the traffic trends, though so that's that's still a bit of a headwind.
In that though we're seeing good.
Ours, and we tend to think that is the situation continues to remain stable that will continue to get better and better each and every month.
Alright.
Helpful.
And then just to follow up on all.
All of them all China, it looks like you're expecting.
Pretty good day whooping up uncontrollable how are you expecting them to play out do you think it will be.
Normal level, then as we can look over here.
Here or are you expecting it to be more promotional as maybe Brian brand site for consumer dollars or how are you thinking about that.
I think I think generally I would describe it as optimistic because you have seen E commerce performed very well in country.
Even characterized China is still being a little bit more bias towards E. Commerce right now if they continue to recover from the effects of the pandemic I think we're better prepared quite frankly than we've been in past years.
You manage the margin against the opportunity in the marketplace is always the big question, but based on the brand performance, we've seen year to date and the lineup we.
We feel we feel pretty good but the reality of it it's a pretty focused selling.
Season, So we'll have to wait wait to see how things performance, but as David pointed out early October recent been strong year to date rates have been strong in e-commerce for our brands. So.
We're optimistic about what single day can can be for US and then get don't forget 12, 12, right behind that because that's another meaningful day in the period that performs and is traditionally from very well for us.
Yeah, that's true.
Thanks, So much good luck next corner.
Okay.
The next question is from John Kernan is Cowan and company. Please go ahead.
Hi, guys. Congratulations on a good quarter. This is Jared on for John I was wondering if you could talk about the margin implications with E. Commerce now that it's growing as fast as it is both domestically and internationally.
Yes, generally we've been very pleased but probably goes in line with our overall commentary very pleased with our overall gross margin performance.
E Commerce continues to be at an above average retail gross margin for us I mean, some of that is still size and scale comparative but it also has an environment, where we have better insight into who are consumerism driving traffic there.
It is also benefit for some some of the success of our recent product introductions in particular arched solution or Max cushioning solution in a lot of a lot of the fifth solutions do very very well there.
So we continue to be very pleased by that and will continue to invest behind it as a result.
So is that the same domestically and internationally.
Yes.
Alright, that's from a gross margin perspective is that also from EBIT margin perspective.
Yes.
Alright, Thank you very much couldn't schedule it's nuts.
Thanks.
This concludes the question and answer session as long as exchange Conference call. You may disconnect. Your lines. Thank you for your participating and have a pleasant day.
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