Q3 2023 Kontoor Brands Inc Earnings Call

November 2, 2023

Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is...

Speaker 1: It is now my pleasure to introduce your host, Eric Tracy, vice president, corporate finance, and investor relations. Thank you. Please go ahead.

Speaker 2: Thank you, operator and welcome to Contour Brands third quarter 2023 earnings conference call.

Speaker 2: Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ.

Speaker 2: These uncertainties are detailed in documents filed with the SEC. We urge you to read our risk factors, cautionary language, and other disclosures contained in those reports.

Speaker 2: Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly define in the news release that was issued earlier this morning.

Speaker 2: Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release, which is available on our website at contourbrands.com.

Speaker 2: These tables identify and quantify excluded items and provide management's view of why this information is useful to investors.

Speaker 2: Unless otherwise noted, amounts referred to on this call will be in constant currency, which exclude the translation impact of changes in foreign currency exchange rates.

Speaker 2: Joining me on today's call are Contour Brands President, Chief Executive Officer and Chair, Scott Baxter, and newly appointed Chief Financial Officer, Joe Alkire. Following our prepared remarks, we'll open.

Speaker 3: We anticipate the call will last about an hour. Scott? Thanks, Eric. And thanks everybody for joining us on our call. I'm pleased to share that we delivered two, three results above our expectations, most notably with upside to our top line. Our strategic playbook is working and is why I'm so confident in the next phase of Contour's evolution, even as we assume a more challenging macroeconomic back.

Speaker 3: And on the bottom line, excluding the duty charge, which Joe will provide more detail on in a bit, operating results also exceeded our plan.

Speaker 3: Global contour revenue increased 8%, including about a point of FX benefit, with particular strengths in the US across both wholesale and D2C.

Speaker 3: Within the US market, ongoing strong POS and share gains were driven by accelerating shipments during the quarter. From a share perspective, according to Sirana, which focuses on the US total measured market, we continued to outpace the market in our US hotel and core denim business during the third quarter and here to start Q4, a few notable call-offs. But the last three months, Contour Brands outperform the market by approximately 140 bases.

Speaker 3: And in men's bottoms, we outperformed the market and our largest competitor by 170 and over 250 basis points respectively. And in women's, our lead business gained over 60 points of share to the market, outpacing our closest competitor by 30 basis points.

Speaker 3: Importantly, even after aggressive pricing actions taken by select peers, we've continued to see market share gain.

Speaker 3: For example, over the last month, our Wrangler Men's Bottoms business outpaced our largest competitor by over 250 points, while Leigh's men's outperformed by roughly 150 points.

Speaker 3: Our share gains in the core are in large part due to the strategic investments in our brands across innovation, design and demand creation.

Speaker 3: that drives competitive separation. I'll touch on examples of our elevated demand creation and innovation platforms in a bit. This strength in our core is complemented by category extensions. As we diversify our product assortment beyond denim bottoms, global highlights on a reported basis include outdoor, up more than 30% in Q3, while Western and female also saw positive momentum.

Speaker 3: further proof points of our brand's health. Our D to C business once again delivered broad-based strengths in the quarter.

Speaker 3: Globally, Contour D to C increased 6% led by our own.com up 10%. In the US, own.com increased 11% balanced across brands with Wrangler and Lee both experiencing double digit gains. And international D to C remained healthy in Q3, increasing 5% with Wrangler increasing 21% and Lee increasing 2% or up 15% X giant.

Speaker 3: And within international, we did see choppiness during the quarter, with expected softness in China more than offsetting reported gains in Europe . Importantly, we are seeing China trends accelerate here in Q4 and continue to anticipate the region to return to significant growth in the quarter, up 20% plus.

Speaker 3: D to C in international R.K. areas of growth for contour going forward with significant white space in each, as these segments represent only 12 in 21% of our last 12 month next respect.

Speaker 3: The KTB investment thesis remains highly differentiated relative to many of our peers that operate more mature D2C and international businesses. And the diversified and accretive growth that these opportunities afford is still very much ahead of us.

Speaker 3: And we will use ongoing structural gross margin accretion from these areas to help fund amplified investments in critical growth enablers such as talent, innovation and demand creation.

Speaker 3: creating a virtuous cycle for sustained top-line growth over the long term.

Speaker 3: So let me touch on these a bit more in detail. First, with the man creation.

Speaker 3: Starting with Wrangler, simply put, Q3 was as big of a demand creation quarter the brand has ever experienced in its 75 year history.

Speaker 3: strategic partnerships with Thondro, Stau, Mini Rodini, and Barbie, not only support our efforts to reach the female and youth demos, but does so in an elevated, brand-enhancing manner across the globe. The Wrangler and Barbie collection was our best and fastest-selling collaboration ever.

Speaker 3: Inspired by powerful cowgirls, the collection combines heritage denim with bull prints, further advancing Wrangler's diversification strategies to attract new and younger consumers while remaining authentic to the brand.

Speaker 3: Also in Q3, made by Cowboys, four Cowboys took on a whole new meaning as Rangler became the official genes of America's team, the Dallas Cowboys.

Speaker 3: Sponsorship will run over the next three years, amplified via an integrated media platform, signage and activations at AT&T Stadium, social content featuring players and cheerleaders, retail promotions, and a monthly concert series. This connection of two iconic American brands doubles down on our Texas heartland, and we couldn't be more excited about future opportunities to build on the partnership.

Speaker 3: And as we begin view four, the demand creation momentum for Wrangler continues. Just yesterday, we teased the launch of our Colab with iconic premium bourbon brand Buffalo Trace.

Speaker 3: fittingly, it kicks off with a launch party next week at New York City hotspot raised bar. And then in December , the brand once again takes over Las Vegas at the Wrangler National Finals rodeo. However, this year promises to be even more special as country music superstar and our first female music and door seat, Lanie Wilson, hot off her record breaking nine CMA nominations is scheduled to open the rodeo on December 15.

Speaker 3: Laney will also host a four-night concert series answered by Wrangler to close out the biggest weekend in rodeo, wearing her iconic Wrangler flares and bell bottoms on an off stage, now turning to the Libra.

Speaker 3: Shoes free saw another quarter of tremendous return on marketing investment and importantly, manifested on a global scale.

Speaker 3: During the third quarter, the Libra launched its newest and most iconic female fit, the Ryder G, which was inspired by our very first women's denim line, the Lady Lee Ryder and made modern for today's woman. The global campaign, shopped by Mark Selliger, and set to the Donnas.

Speaker 3: who invited you, launched mid-September and has sparked new excitement in our Women's Premium denim collection.

Speaker 3: In addition, Trend-Right collaborations with culturally relevant brands such as Dragon Ball Z, Roaring Wild, and Daydreamer also continue to extend Lee's reach to a younger, more diverse audience.

Speaker 3: During Q3, Lee turned up the heat across Southern California as the Lee and Daydreamer partnership took over the iconic Fred Seagal shop on Sunset Boulevard with a two week showcase of the collection.

Speaker 3: This launch leaned heavily into Daydreamer's LA cool aesthetic through the key premium distribution in Fred Segal and Revolve. And then in September , the brand hosted a unique, one-of-a-kind experiential event.

Speaker 3: at the Ed Sheeran concert at SoFi Stadium in LA with attendees spending casemakers, influencers, and celebrities from all over the world.

Speaker 3: and the momentum has carried into Q4 as Lee is currently ramping

Speaker 3: Digital campaigns in support of ultra-lux and extreme motion innovation

Speaker 3: The further drive brand separation in the marketplace, we are also amplifying our focus on innovation. As our pipeline is healthy and accelerating, a perfect example of innovation that cuts across both product and manufacturing are in the good platform continues to scale, delivering water and cost fading.

Speaker 3: We recently announced that we surpassed our 2025 water savings goal of over 10 billion liters of fresh water. Two years earlier than was targeted. The accelerated accomplishment demonstrates our commitment to sustainability and the effectiveness of the Indigo program, which also creates an important industry standard for others to follow.

Speaker 3: I am proud of the work we are doing to save water with platforms like Indigoode and other cutting edge technologies, such as digital printing, driving towards a future where all genes can be created using zero fresh water.

Speaker 3: Other innovation platforms such as extreme motion, ever fit, and ultra-lux for Lee, as well as ATG in a performance specialty fishing line, Wrangler Angler, not only diverse apy are offering, but does so in an elevated way that mixes up AURs and gives the brands increasing permission to play in more premium points of distribution.

Speaker 3: Needless to say, we have a ton of brand momentum for the balance of the year and into 2024. Just one of the factors that gives me great confidence in the go forward. You don't develop this heat without investing behind the brands in a highly productive way. From talent to design, to innovation, to demand creation, and we will continue to amplify strategic spend in support of diversified growth across categories, channels, and geographies.

Speaker 3: But make no mistake. We love how we are positioned in taking share within core US wholesale, with incredible partners such as Walmart, Amazon and Target, as well as Western Specialists.

Speaker 3: Retailers that align and support our brand's value proposition with consumers, especially important, given the macro challenges around the world.

Speaker 3: Structurally accretive growth, particularly in D2C and international, helps fund...

Speaker 3: as does constantly evaluating our operating model, finding ways to reduce non-strategic spend, simplify processes and enhance efficiencies, including within our supply chain.

Speaker 3: Our proactive restructuring actions last quarter and amplified inventory actions we are taking now are good examples of investment health here foundation of which to build. But rest assured, we are just in the beginning stages of transferring our model for the-

Speaker 3: with substantial opportunity to unlock value over time. Stay tuned for more here.

Speaker 3: And these actions also help accelerate cash generation, creating significant opportunity to return cash to shareholders. As evidenced by our recently announced increase to the dividend, our capital allocation optionality remains robust. This cash flow optionality, when taken with our resilient fundamentals, even during a challenging macro environment, creates a powerful combination that should support superior TSR over time.

Speaker 3: We look forward to sharing more on our long-term strategic vision at our investor day.

Speaker 2: Thank you, Scott, and thank you all for joining us today. Before I review the third quarter, let me say how honored and appreciative I am to have the opportunity to serve as CFO of Contour Brand.

Speaker 2: I am thrilled to reunite with the contour family and I want to express my gratitude to Scott, the board and the organization for the support as I transition back into the business.

Speaker 2: I feel a tremendous amount of responsibility and stewardship to all contour employees around the globe, as well as those that have come before me and built the strong foundation that is in place today.

Speaker 2: I'd also like to extend a special thank you to Rustin, who has been a strong resource for me during the transition. He will be missed and we wish him and his family all the best in retirement. With that,

Speaker 2: Global revenue increased 7% compared to the prior year as broad base growth in the US in both wholesale and DTC was partially offset by a decline in international.

Speaker 4: Our third quarter results again reflected the strong momentum of our brands as evidenced by continued market share gains and POS strength across key accounts and distribution channels.

Speaker 4: On a regional basis, U.S. revenue increased 12%. Direct to consumer increased 7%, including 11% growth in digital.

Speaker 4: In the wholesale channel, revenue increased 12% with strong performance from both brands.

Speaker 4: In addition to strength in our core categories, we also drove growth in outdoor and non-denome bottoms as category expansion remains a top strategic priority.

Speaker 4: And while retailers remain cautious, inventory levels in the channel continue to improve and are more balanced as POS and shipments work towards equilibrium as we enter the holiday period.

Speaker 4: As expected, international revenue decreased 8%, driven mainly by China, which declined 19%.

Speaker 4: As we discussed last quarter, the recovery in China will not be linear as a result of COVID-driven lockdowns and reopenings from a year ago.

Speaker 4: In terms of our outlook, we anticipate more than 20% growth in the fourth quarter, and importantly, as we enter 2024, the underlying fundamentals of our business and the region have improved.

Speaker 4: Inventory levels across our retail network have returned to more normalized levels, and we are entering next year with a stronger foundation from which to grow.

Speaker 4: We see significant long-term potential in China and expect growth to accelerate next year, due in part to an increase in the strategic investments we are making in the region.

Speaker 4: In Europe , revenue decreased 4% as double-digit growth in DTC was offset by decline in wholesale.

Speaker 4: While we expect the macro environment to remain difficult in the region near term, we are encouraged by the strength of our DTC business across both brands supported by investments we have been making in the platform.

Speaker 4: Global revenue for the Wrangler brand increased 9% driven by growth in both wholesale and DTC. The ongoing diversification into non-denim categories continues to drive brand momentum with particular strength in outdoor and non-denim bottoms.

Speaker 4: The brand's targeted investments in demand creation, strategic partnerships and innovation are continuing to drive strong market share games across the retail industry.

Speaker 4: In the U.S., revenue increased 10% with wholesale, own.com, and brick and mortar all contributing to growth.

Speaker 4: Wrangler International Revenue increased 2% driven by 21% growth in DTC and a modest increase in wholesale.

Speaker 4: Now turning to leave, global revenue increased 3%. Growth was driven by strength in the US with wholesale increasing 23% and own.com increasing 11%.

Speaker 4: In addition to growth in core denim, non-denim bottoms also performed well in the quarter and contributed to growth.

Speaker 4: We international revenue decreased 13%. In Europe , revenue decreased 3% with 15% growth in DTC, more than offset by decline in wholesale. An APAC has expected revenue decreased 18%.

Speaker 4: And finally, from a channel perspective, US wholesale increased 12% while non-US wholesale decreased 10%.

Speaker 4: Global direct-to-consumer was up 6%, including a 10% increase in own.com and brick and mortar up 2%.

Speaker 4: Turning the gross margin. As we shared in this morning's release, the quarter was impacted by an unanticipated 200 basis point charge from duty expense related to prior periods.

Speaker 4: The issue was identified late in the quarter and arose from the ERP implementation dating back to 2021.

Speaker 4: Excluding the duty expense, gross margin was flat for just the prior year at 43.5%.

Speaker 4: Pro-Smargin in the quarter also included the impact of proactive inventory management action.

Speaker 4: These actions relate to clearing through non-core inventory as we aggressively focus on reducing overall inventory levels and exiting 2023 in a clean inventory position.

Speaker 4: While these actions have a negative impact on gross margin near term, they improve the quality of our inventory and yield additional cash generation.

Speaker 4: Further, excluding the impact of these actions and the duty charge, gross margin increased versus last year, which was largely consistent with our expectations.

Speaker 4: The increase in gross margin was driven by channel mix, pricing, and lower transitory costs such as air

Speaker 4: S-GNA expense was 186 million. As a percentage of revenue, S-GNA decreased 30 basis points to 28.4% versus adjusted S-GNA in the prior year.

Speaker 4: Strategic investments in DTC and demand creation, as well as increased distribution costs were partially offset by discipline management of discretionary expenses and operating leverage.

Speaker 4: Operating income was 85 million as reported or 99 million excluding the duty charge an increase of 10% compared to adjusted operating income last year The duty charge operating margin increased 30 basis points to 15.1%

Speaker 4: Burings for share with $1.5 compared to adjusted EPS of $1.11 last

Speaker 4: The report included a 17 cent negative impact from the duty charge. Excluding the duty charge, Q3 EPS was $1.22, representing a 10% increase versus the prior year ahead of our expectations.

Speaker 4: Now, turning to our balance sheet, third quarter inventory decreased 11% compared to last year. We made more progress than expected on inventory during the quarter due to stronger than expected revenue and the inventory management action.

Speaker 4: While inventory levels are still elevated, we remain comfortable with the quality of our inventory and the ability to support our forward growth plan.

Speaker 4: We expect inventory levels to decrease by approximately 100 million by the end of the year to approximately 500 million.

Speaker 4: We finished the third quarter with net debt or long-term debt less cash of $708 million and $78 million of cash on hand.

Speaker 4: Our net leverage ratio, our net debt divided by trailing 12 months adjusted EBITDA was 1.9 times at the end of the quarter within our targeted range.

Speaker 4: We expect net leverage to approximate 1.6 times by the end of 23.

Speaker 4: And as previously announced, our board of directors declared a regular quarterly cash dividend of 50 cents per share, representing a 4% increase in cash.

Speaker 4: And finally, at the end of the third quarter, we had 62 million remaining under our share repurchase authorization. We did not repurchase shares in the third quarter.

Speaker 4: Revenue is expected to increase approximately 1% compared to 2022. This compares to our previous outlook of a low single-digit increase.

Speaker 4: Our updated outlook includes the following expectations. First, we continue to anticipate a more challenging U.S. macro environment in the fourth quarter. We are pleased with the strength we delivered in the third quarter and are encouraged that positive POS trends have continued to start the fourth quarter. We do, however, believe it, burden to plan the business conservatively given the macro uncertain.

Speaker 4: Second, we expect relatively stronger performance in international markets in the fourth quarter driven by China, as well as continued growth from our global DTC business.

Speaker 4: Gross margin is expected to approximate 42.5% on an adjusted basis, including a 40 basis point impact from the duty charge as well as the proactive inventory management act.

Speaker 4: This compares to our prior outlook of 43.5 to 44%.

Speaker 4: Our updated outlook implies fourth quarter gross margin expansion of approximately 300 basis.

Speaker 4: driven by ongoing structural mix, strategic pricing, and a decrease in input costs partially offset by inventory management actions.

Speaker 4: As we look to 2024, based on current visibility, we expect the combination of lower input costs and structural margin mix, mainly DTC and international to drive significant gross margin expansion.

Speaker 4: While we expect this to result in accelerated earnings growth, it also provides the investment capacity needed to continue investing behind our brands and enterprise strategy.

Speaker 4: S-DNA has now expected to increase at a low single-digit rate on an adjusted basis compared to 2022. We will continue to prioritize investments in our brands and capabilities in support of long-term accretive growth while remaining diligent with regard to discretionary spending.

Speaker 4: EPS is now expected to approximate $4.35 on an adjusted basis, including an approximate 15-cent negative impact from the duty charge.

Speaker 4: excluding the duty charge, full year adjusted EPS is expected to approximate $4.50.

Speaker 4: We expect full year operating cashflow of approximately 335 million.

Speaker 4: We expect to end the year with approximately 500 million of inventory, representing a more than 15% decrease compared to the prior year.

Speaker 4: We also expect to end 2023 with approximately 200 million of cash on hand and roughly 700 million of liquidity supporting significant capital allocation optionality as we move into next year.

Speaker 4: I'd like to take a few moments and highlight the fundamental profile of our business in the second half of 23 based on our updated full year outlook.

Speaker 4: Our quarterly results this year have been volatile from a comparability standpoint, making it somewhat difficult to understand the true underlying trajectory of our business as we move into next year.

Speaker 4: Looking at our business by half presents a cleaner picture and one that is more representative of our expectations moving forward, the earnings power of the business and the uniqueness of our model.

Speaker 4: For the second half, we expect approximately 2% revenue growth and excluding the duty charge, close to 200 basis points of gross margin expansion and double-digit operating earnings growth.

Speaker 4: While we expect macro challenges to persist through at least the first half of 2024, the drivers of our second half 23 fundamentals, mainly gross margin expansion, will carry over into next year and support accelerated earnings growth and cash generation.

Speaker 4: Additionally, we expect to achieve more steady state levels of inventory, further contributing to an increase in cash generation. And we have a balance sheet that can support significant capital allocation optionality.

Speaker 4: While we will remain disciplined and rigorous with regard to capital deployment and balance sheet management, we have a number of levers to pull to continue driving strong total returns for stakeholders regardless of the operating environment.

Speaker 4: To wrap up, I'd like to offer some perspective based on my observations through the first couple of months at contour.

Speaker 4: I am confident in contours opportunity to deliver sustainable growth and returns on capital.

Speaker 4: The brands are strong. We are appropriately investing behind a focused strategy and there is significant white space to drive a creative growth through expansion and under index channels and categories.

Speaker 4: Second, there is significant opportunity to expand Grossmark.

Speaker 4: We have visibility to lower input costs next year, and structural margin drivers, such as DTC and International, will support sustained gross margin expansion over the medium to long term.

Speaker 4: Further, our global supply chain strategy is evolving, and we have identified a number of initiatives, including skew rationalization, that we expect to drive incremental gross margin benefit and networking capital reductions over a multi-year horizon beyond our previous expectations.

Speaker 4: These benefits are both upstream and downstream and will fundamentally change how we go to market and our operating model.

Speaker 4: Third, we are committed to driving greater efficiency in the business.

Speaker 4: We will pursue a number of initiatives to reduce complexity, leverage our platforms, increase agility, improve profitability, and importantly, create additional investment capacity for our brand.

Speaker 4: These initiatives will unfold over a multi-year horizon and will further transform our operating model and unlock significant values.

Speaker 4: We look forward to sharing more details on these topics in the context of our updated strategic plan at our investor day next year.

Speaker 4: This is an important time for contour. We are focused on fundamentals, execution, and long-term TSR.

Speaker 4: I am confident we have the team in place to deliver on the opportunities ahead and excited to partner and drive the next chapter of growth and value creation for

Speaker 4: This concludes our prepared remarks. I will now turn the call back to the operating.

Speaker 1: Thank you, ladies and gentlemen. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two. If you would like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up the handsets before pressing the star keys. Again, that's star one to register.

Speaker 1: Today's first question is coming from Mauricio Serna of UBS. Please go ahead.

Speaker 5: Thanks, good morning and thanks for taking my questions. Maybe just to start with the duty expense, can you give us more color around it? Should we think about the fiscal year 23 EVS guide now at 450 really? And then on the growth margin and inventory actions, it's great to see the sequential improvement there. Just to talk more about the amplified inventory actions taken, you know, still.

Speaker 5: Seems that you want to be proactive and make sure you come out in a clean position out of

Speaker 5: 3, is that the way to really think about it?

Speaker 4: Hey, Marisha, good morning. It's show maybe I'll start with the duty and I'll let Scott kick off the inventory conversation. So yeah, on the duty, you know, the issue primarily relates to prior periods 21 and 2022, specifically as we...

Speaker 4: stated in the prepared remarks, we identified the issue late in the quarter, and it really dates back to the ERP implementation. And so, you know, perspective here, I think maybe helpful. You know, the duty charge was $13 million over a two and a half year period on total cost of goods sold over that same timeframe of, you know, several billion dollars. So...

Speaker 4: You know, we won't get into the accounting technicalities as to why the charge is presented as gap versus adjusted, but the charge was a prior period adjustment, you know, really a correction of an error and just out of period.

Speaker 4: Clearly this charge was not contemplated in our prior outlook. And as you think about the appropriate baseline for underlying earnings in 23, we view $1.22 and 450 of adjusted EPS, respectively, as more representative going for.

Speaker 3: Fantastic, thanks Joe Mauricio. Thanks for the question. You know, we've thought about what we wanted to do to position ourselves for 24 and put our teams in the A position. And we started this process a little bit Mauricio with our manufacturing downtime in the beginning of the year. And then we had such broad base strength in our business that we knew we could do this.

Speaker 3: We knew we could be aggressive and we could clean everything up. It was the right thing to do from a hygiene standpoint for our business. And as you know, it frees up a tremendous amount of cash that we can invest back in the brands and back in our people, which is really great.

Speaker 3: We're investing back in the business because of this. It optimizes our distribution centers and our supply chain, which is great. And you know, when you think about an action like this, what it does is it has benefits in almost every aspect of our

Speaker 4: So we're really excited about where we stand from an inventory standpoint heading into 24. And it's been difficult for a lot of people last couple of years, but right now, we are in a fantastic position. Joe, any additional comments there? And maybe just a few. These actions as Scott said, we're proactive. These were the right decisions for the business.

Speaker 4: Recrearing through non-core inventory, the majority of our inventory remains core, over 85% or so. And in terms of these actions, our inventory levels continue to normalize. We're almost there. In some respects, these actions are evergreen, but in terms of the more elevated impact, we'll be through that pretty much by the end of this year.

Speaker 1: Thank you. The next question is coming from Bob Dribble of Gugetheim. Please go ahead.

Speaker 6: Hi, good morning guys and Judo welcome back. Congratulations.

Speaker 6: I guess I have two questions I'd like to really focus on. The first one, Scott, from your perspective, when you look at the macro, you touch a lot of different price points now. And...

Speaker 6: distribution channels. It's give us, you know, maybe your perspective on a high level around the consumer, you know, around the macro, you know, sort of even more recent and in this sort of the next few weeks is to think about the holiday season. And then the second question has, you talked a lot about, you know, the share gains and some of the, you know, point of sale strength that you've seen in the third quarter, it seems like.

Speaker 6: You're seeing it in the fourth quarter. You just talk a little bit more about sort of the dynamics, maybe pricing, competition, anything more around what you see unfolding, around these share gains and this sort of categories that you're competing in. Thanks.

Speaker 3: Sure, you'd be good to hear your voice Bob. Thanks for the question. I'll start and then I'll talk to it over to Joe. We'll kind of do a little bit of both on this one. But from a macro standpoint, we've talked a little bit about the fact that we thought the consumer was gonna be a little stressed here as the year went on. And hopefully that'll start to mitigate here going into 24. But I actually think that we're gonna have a good holiday season. The consumer always shows up around the holiday season. And why I think that for us is that we've taken a lot of share here in the last couple of years, which has been really important for our brands. So what that means is you see our brands in a more elevated way and you also see our brands in a bigger distribution from a real estate standpoint.

Speaker 3: And what's happening for us is you talk about our brands, our price right, you get a tremendous amount of value at a really good price. But there's two other components that have been really important for us. One, we've taken our demand creation to another level. So people are walking into our big customers and our big consumers are walking in and saying, hey, where are Wrangler and Lee? I have to have them. I'm seeing them everywhere. I'm seeing them if I go to a Dallas Cowboys game. I'm seeing them if I go to Austin City limits. We see these big Barbie kickoff in collection. So we're seeing some really interesting things and people are migrating to our brands.

Speaker 3: add a really good price

Speaker 3: So I think we've positioned ourselves really well as we've thought about how we distance ourselves from everybody else.

Speaker 3: But there's one other little piece here that's really interesting for us as a company as we move forward. And that's that from a D to C standpoint. And Bob, you've been with us on this journey. And you remember we talked a lot about leading with digital, leading with digital, leading with digital because we never invested in digital in the old world five years ago. And so we did that and we've got that platform up and running. But now we're really spending some of this extra cash that we have and the investment dollars that we have on building our D to C network globally. And in addition to that, really building out our international platforms too. And the key for us is that it's pretty evergreen because we're fairly new in both of those. And we have a lot ahead of us versus some of our competition. So that's why I feel really good about our consumer and how we're going to control our own destiny from this moment here going forward. I'm pretty excited about our future.

Speaker 4: Joe, any comments about share games and pricing? Yeah, just a few on pricing, Bob. So pricing for us has been a tailwind this year. There's really nothing fundamentally different compared to the prior outlook on the pricing front.

Speaker 4: No, as Scott said, our market share games remain strong.

Speaker 4: performance at POS remains strong. These brands are performing at retail. And we were very strategic with pricing over the past couple of years. And pricing is a conversation with retailers as it always is, but it's just one factor in terms of the number of levers we have to pull on the gross margin front.

Speaker 1: Thank you. The next question is coming from Brook Roachiff, both in SACS. Please go ahead.

Speaker 7: I want to follow up on Bob's question and just get a little bit more sense of what's changing in the macro outlook that's caused you to be a little bit more cautious on the year and it sounds like a little more cautious.

Speaker 7: next year, despite the ongoing strength of your brands and the share games.

Speaker 7: in channel or type of product that's causing

Speaker 3: So Brooke, not cautious, really at all, still feel great about the business. From the standpoint of our POS, our POS is still strong and continues to be positive. Now, our customer might be a little bit more cautious in their ordering patterns and what have you, but let me be really clear here. This is a really interesting point because our gains are so strong share gains. Our POS is so good.

Speaker 8: And our demand creation right now is hitting on all cylinders. It creates an atmosphere where you have to go ahead and order our products. So I feel really good about what's happening in our business right now. I mean, I've been here now as a CEO for five years and I've told the team here recently. I have never felt better than I feel right now. This team, this business, these brands, the product that we're creating, the decisions we're making. I don't, you know, I feel really confident. So not from me. Joe, anything to add there? No, no, I think you covered it.

Speaker 7: Outlook for Gross Margin Beyond the Duty Charge. How much additional margin had winter you seeing this year from inv-

Speaker 7: And then, can you contextualize the level of transitory headwinds that are still weighing on growth margin in 4Q where we might see some better visibility on those.

Speaker 4: Sure, sure, Brooks. So for the quarter, excluding the duty charge, the gross margin was flat. That included the inventory management actions that we took, that was about 30 basis points. So excluding those, the gross margin increase, year over year, pretty much as we expected. And the main drivers of that were really price mix and lower transitory costs such as

Speaker 4: you know, such as air freight offset by, you know, still higher input costs, you know, moderating as we expected versus Q2, but still higher. So for the full year, you know, we're at 42 and a half or 42 nine.

Speaker 4: when you exclude the duty charge, that's about 60 basis points off of the low end of our prior outlook. And the biggest driver of that really is the inventory actions that we took. There's a little bit of...

Speaker 4: Mix related impact in there as we tighten up the revenue range and you've got ongoing strength from

Speaker 4: you know from US wholesale but I think importantly for Q4

Speaker 4: We've got about 300 basis points of expansion embedded in the outlook. Again, the drivers are really the same pricing mix, but as we've said all year, we have input costs flipping to a tailwind in the fourth quarter, and that will really continue into next year.

Speaker 6: Thank you. The next question is coming from Will Gartner of Wells Fargo. Please go ahead. Hey, guys, thanks for taking my question.

Speaker 9: Cash generation, you know, you're improving your inventory significantly here. Could you just discuss? Um, uh,

Speaker 9: I know you didn't have any share of purchases this quarter. Just maybe discuss how you're thinking about it.

Speaker 4: Yes, so go ahead, Joe. And then maybe I'll jump in at the end. Yeah, maybe I'll start here, Will. So on the capital allocation front, the priorities are unchanged. Organic reinvestment in the business, given the performance we have across both brands.

Speaker 4: maintaining that superior dividend, which you saw what we did this quarter. And then we've got chair repurchases in M&A. So I think near term, we're continuing to focus on working capital improvement. We're really pleased with the progress on the inventory front, and I think we're almost there.

Speaker 4: on the inventory side. Leverage is in good shape. It'll come down further next year as we expect an increase in cast generation and gross margin recovers in our inventory normalizes further. So, you know, we've got a lot of optionality. We're gonna remain really disciplined here, but certainly an opportunity to more actively deploy capital in a TSR-created manner. So, just-

Speaker 10: We agree with everything Joe said obviously, right? But if you think about how we think about this as a company and how pleased we are with the position that we're in, and if you think about the industry in the world that we operate in right now to have a balance sheet like this to be in the position that we're in to be able to do what we need to do to drive this business, and I think the other thing that makes me more excited about anything that we've talked about is the fact that we can do multiple things.

Speaker 10: We aren't tied to just one thing by any, you saw in my prepare marks and Joe's remarks, we increased our dividend, that was just one thing we did recently, but we have the ability to do multiple things at the same time. And I think being in that position in this day and age and the time in the environment right now really puts us at a big, big distinctive advantage, especially with these brands and how they're operating right.

Speaker 9: And maybe just one follow up still on SGNA, you're cutting from a single digit growth to low single digit growth. You can just discuss where your taking costs out and maybe if there's opportunity in the next year to continue to do so.

Speaker 4: Yeah, I'll take that. So really no change to the investments in the strategic priorities, DTC, demand creation and innovation. The reduction is really on the discretionary expense side and we're just being a little bit more cautious, given our outlook on the overall environment.

Speaker 1: Thank you. The next question is coming from Jim Duffy of Steve Foll. Please go ahead.

Speaker 11: Hi, this is Peter McGollick on for Jim. Thanks for taking our questions and welcome Joe. First on free cash flow. Could you talk about the puts and takes of the operating cash flow guidance? I recognize this is a new guidance light item. But with inventory management more tightly than previously anticipated, I was curious to get a sense of the working capital items and other drivers of the $335 million operating cash flow guide.

Speaker 4: Yeah, so I'll think that Peter, how you doing? Yeah, so we've got a pretty strong fourth quarter in terms of cash generation. That's really two things, margin recovery and the business mainly driven by gross margin and then further unwinding of the network and capital mainly inventory. So we've got about $335 million for the year. I think we're somewhere around $175 or $180 million in the fourth quarter and roughly $100 million of that will be a further reduction in overall inventory level.

Speaker 11: Okay, and one follow-up as we zoom out and think of the long-term financial capacity of the business, can you discuss the structural gross margin potential and any updated assessment you might have of a bridge towards the prior 46 percent gross margin potential outlook?

Speaker 4: I'll start. So nothing fundamentally different, Peter. I think we still see that algorithm largely intact. You'll have the structural margin drivers in DTC and international as input costs normalize.

Speaker 4: Here, we're going to recover a lot of what we lost over the past couple of years from inflation and supply chain disruption.

Speaker 4: And then we've got a handful of other initiatives that I talked about in my prepare remarks that are more...

Speaker 4: mid to longer term in nature on the supply chain front that are significant, right? These are

Speaker 10: networking capital related. We'll share more details on those, but those will unfold over a multi-year period, and we may start to see some of those bare fruit in the second half next year. And I'd reiterate what Joe said here. I think there's one really important point that we've talked a lot about as a team. We went through a...

Speaker 10: obviously everybody knows that. Then a very difficult ERP is that everyone knows when you do an ERP, it takes up a lot of mind space for your entire organization.

Speaker 10: Now you've got a lot of bright people, a really talented team that are going to focus their energies on this back end supply chain that Joe has now talked about a couple of times. And we're going to put a lot of effort and energy into that. You know, one of the things that's great about here is that we already do it really well. And we're going to enhance that going forward. So we see opportunity there, as Joe has mentioned. And we've got a lot of people that are going to be focused on that. Now that we've freed up some of their time.

Speaker 10: Thank you. The next question is coming from Paul Kerney of Farclays. Please go ahead. Thank you. Good morning. Thanks for taking my question.

Speaker 4: First, can you talk about the large and performance by brand? It looks like the operating margin fell almost 350 basis points where Sirenglo down 25. What was the driver of the differential between the two? None of the follow up.

Speaker 12: Yeah, Paul, if you're looking at the reported numbers, you've got the duty charge embedded in there. So there's some noise in there related to that. Is that primarily polling on the

Speaker 4: Second, I guess as we look into next year and we think about SNA, how should we think about SNA growth relative to the low single digit this year, especially given the investment that you're making into?

Speaker 4: Yeah, I think we'll hold on any specific guidance for next year, but I would say just from a construct standpoint, we'll continue to look to distort investment toward the areas we talked about, DTC, demand creation and innovation while we hold the line on discretionary.

Speaker 4: and look to leverage those pretty aggressively. We do continue to have opportunities to drive further efficiency in the business. I talked about that a little bit in my-

Speaker 4: Prepare remarks and we'll talk about where and how that's going to come to life in the context of our plan for next year.

Speaker 1: Thank you. The next question is coming from Bob Drew Bull of Guggenheim. Please go ahead.

Speaker 6: One of the jump back in just and follow up on, I mean the SGNA and the spend, but the demand creation, you know, you talk about just the brand doing as much as it's ever done sort of this current quarter, you know, the Cowboys and Laney Wilson, you just talk about sort of the level sort of where you are today. And as you think about that dollar spend, a percentage spend, you know, how that might proceed, you know, into next year and beyond.

Speaker 4: Yep, thanks, Bob. I'll start on the numbers and Scott me want to jump in here. So for the quarter, as an example, we increased our demand creation spend at a double digit rate in the quarter. And you've seen the...

Speaker 4: The impact that that's had and some of the things we're doing, which we're really excited about, that's something we'll continue to do over time. So I would expect, you know, demand creation as a percent total to continue to increase. And we'll look to grow that investment, you know, at a rate slightly above our overall revenue growth. And Bob, I'm gonna jump in here because I really want to.

Speaker 10: because I would be remiss if I didn't give a big shout out to Holly and Bridget globally.

Speaker 10: from Wrangler and Lee, the two folks that lead our demand creation platforms across the globe for our brands, in that in my point of view is that you can spend any amount of money you want, but if you don't spend it intelligently, it really doesn't matter.

Speaker 10: And we used to spend a lot of money and not get a lot of return from that investment. And like anything in life, you want to increase that investment return in our team.

Speaker 10: And those leaders have done an outstanding job. And I won't go through all the things that we talked about, you know, like the Laney Wilson, the Cowboys, and all the, you know, colapse and everything again. But it's a real tribute to how the teams are thinking about our brands, how we're culturally right in the center of everything that's going on around the globe. And every day I'm astounded when I hear about the things that we're working on. And I shared this one other time, you know, we used to make outbound calls for people to partner with us.

Speaker 10: We got a lot of calls that come in now and everybody wants to partner with us. So it's a really fun position to be in and we're really driving forward. And I think that we're doing some things that, I think people would think about us from the standpoint of our size as a company and our spend. I think people would think that we're much larger than we are and spend a lot more than we do because we're having such an impact on the things that we're doing culturally. And you can see it, the brands are really, really, benefiting from it greatly. So I just wanted to make sure that that was stated. So thanks, Bob.

Speaker 1: Thank you. The next question is a follow-up coming from Mauricio Serna of UBS. Please go ahead.

Speaker 5: Great, thanks for taking the fall-up. Just one to fall-up on two things.

Speaker 5: First, I'm thinking if you maybe you could talk a little bit more about the momentum you're seeing there.

Speaker 5: on the own.com, on.com business. How much tax rates is that representative of your sales at the point? And then another follow up on, I'm inventory. Do you have any exposure to the PFAs chemicals?

Speaker 5: You know, just wondering if that increases any risk on the inventory age as some retailers with a, like retailers with a national footprint.

Speaker 5: would likely try to reduce that exposure starting the spring of 24 hours.

Speaker 5: brands have commented recently. Just wondering how that could affect your approach to discounting too.

Speaker 10: Yeah, so let me start with the dot com and yeah, we're really pleased with our dot com business right now. I think the thing that I'm most pleased with, you know, from the standpoint of certain

Speaker 10: But we put a lot of investment behind our dot com and we're actually seeing the benefit of that now. We built out a team. We've done some really good advertising and marketing within there, our capabilities. And now you're marrying our new ERP system that we've put in globally and you're matching that up and marrying that up to our dot com business and the teams are working really exceptionally well together. And we see a pretty bright future. So I guess I want to make sure everyone knows that we're still focused on that digital aspect.

Speaker 10: super important to us and still front the center of course going forward and really like you know what Chris and team are doing there So so really pleased and on the other one let us get back

Speaker 10: And we're looking at, you know, we'll make sure that we have the exactly correct information. So we'll get back to you, Maurizio.

Speaker 1: Thank you. The next question is coming from Will Gardner or Fulstvarko. Please go ahead with your follow-up. Hey, hey guys, thanks.

Speaker 9: come back in here. Just a question on the US wholesale. You have a big, you're lapping a big number next quarter. Just how are you thinking about that as far as growth in the next quarter as you're lapping this sort of big spike last year?

Speaker 10: I think will the most important thing is a freshness of your product, you know, making sure that you're enhancing your core product at all times, which we've done, you know, making sure you've heard us talk a lot about our category extensions. So we've done a really nice job in our T-shirt business, done a really nice job in our, for instance, our ATG business, our Wrangler for Angler business. So all of those

Speaker 10: and silvery lines and also categories are helping us grow that business. We're gaining real estate because of our strong POS. We're gaining share because of our strong POS. And then you enhance that with all the demand creation that I talked about. You know, we feel really confident, you know, in the next quarter. And we really like our big customers, their terrific partners. You know, we've been with them for a long time. We work really well together, the winning in the marketplace. And I think that's a pretty powerful combination. And I will say this once again, our inventories.

Speaker 10: a really good start. So you know from an inventory standpoint you know with our customers we've got you know A plus inventory heading over there and that's what we're focused on going forward.

Speaker 1: Thank you at this time I'd like you turn it back over to Scott for closing comments.

Speaker 10: Well, thank you, everyone. Really appreciate all the thoughtful questions today and look forward to spending time with you again next quarter. Wanted to wish all of you a happy, healthy, and safe holiday season. And thanks for your interest in care about our company. We are working really hard to make sure that we're doing all the right things. And we've got a terrific team here and I'm glad you have a lot of confidence in us. And I know I have a lot of confidence in our team going forward. And we'll look forward to sharing more with you in the future. So thanks, everyone.

Speaker 1: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Peter assistance during the conference. Please press Star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Eric Tracy Vice President Corporate Finance and Investor Relations. Thank you. Please go ahead.

Thank you operator, and welcome to contour brands third quarter 2023 earnings conference call participants on.

Thank you operator, and welcome to contour brands third quarter 2023 earnings conference call participants.

On today's call will make forward looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ.

These uncertainties are detailed in documents filed with the SEC.

We urge you to read our risk factors cautionary language and other disclosures contained in those reports.

Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning.

Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release, which is available on our website at contour brands Dot com.

Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release, which is available on our website at Contura brands Dot com.

These tables identify and quantify excluded items and provide management's view of why this information is useful to investors.

Unless otherwise noted amounts referred to on this call will be in constant currency, which exclude the translation impact of changes in foreign currency exchange rates.

Joining me on today's call are contour Brands', President Chief Executive Officer, and Chair, Scott Baxter and newly appointed Chief Financial Officer, Joe <unk>.

Following our prepared remarks, we will open the call for questions. We anticipate the call will last about an hour Scott Thanks, Eric and thanks, everybody for joining us on our call I'm pleased to share that we delivered Q3 results above our expectations, most notably with upside to our top line. Our strategic playbook is working and is why im.

Greetings and welcome to the contour brands third quarter 2023 earnings Conference call.

So confident in the next phase of contours evolution, even as we assume a more challenging macroeconomic backdrop and on the bottom line, excluding the duty charge, which Joe will provide more detail on in a bit operating results also exceeded our plan.

So confident in the next phase of <unk> evolution, even as we assume a more challenging macroeconomic backdrop.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

On the bottom line, excluding the duty charge, which Joe will provide more detail on in a bit operating results also exceeded our plan.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Global <unk> revenue increased 8%, including about a point of excess FX benefit with particular strength in the U S across both wholesale and DTC.

Global console revenue increased 8%, including about a point of excess FX benefit with particular strength in the U S across both wholesale and DTC.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Eric Tracy Vice President Corporate Finance and Investor Relations. Thank you. Please go ahead.

Within the U S market ongoing strong Pos and share gains were driven by accelerating shipments during the quarter.

Thank you operator, and welcome to contour brands third quarter 2023 earnings Conference call.

Participants on today's call will make forward looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ.

From a share perspective according to.

From a share perspective, according to <unk>.

Which focuses on the U S. Total measured market, we continued to outpace the market and our U S wholesale and core denim business during the third quarter and here to start Q4, a few notable callouts for the last three months Cantor brands outperformed the market by approximately 140 basis points and in men's bottoms we.

Focus is on the U S. Total measured market, we continued to outpace the market and our U S. Wholesale in core denim business during the third quarter and here to start Q4, a few notable callouts for the last three months Cantor brands outperformed the market by approximately 140 basis points and in men's bottoms we.

These uncertainties are detailed in documents filed with the SEC.

We urge you to read our risk factors cautionary language and other disclosures contained in those reports.

Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning.

It performed the market and our largest competitor by 170 and over 250 basis points respectively.

The market and our largest competitor by 170 and over 250 basis points respectively.

Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release, which is available on our website at Contura brand's dotcom.

And in womens our Lee business gained over 60 points of share to the market outpacing our closest competitor by 30 basis points importantly, even after aggressive pricing actions taken by select peers, we've continued to see market share gains.

These tables identify and quantify excluded items and provide management's view of why this information is useful to investors.

For example over the last month, our Wrangler men's bottoms business outpaced our largest competitor by over 250 points, while lease men's outperformed by roughly 150 points are.

Unless otherwise noted amounts referred to on this call will be in constant currency, which exclude the translation impact of changes in foreign currency exchange rates.

Business outpaced our largest competitor by over 250 points, while lease men's outperformed by roughly 150 points.

Joining me on today's call are contour Brands', President Chief Executive Officer, and Chair, Scott Baxter and newly appointed Chief Financial Officer, Joe L car.

Our share gains in the core are in large part due to the strategic investments in our brands across innovation design and demand creation.

Our share gains in our core are in large part due to the strategic investments in our brands across innovation design and demand creation.

Following our prepared remarks, we will open the call for questions.

That drives competitive separation I'll touch on examples of our elevated demand creation and innovation platforms in a bit.

The call will last about an hour Scott Thanks, Eric and thanks, everybody for joining us on our call I'm pleased to share that we delivered Q3 results above our expectations, most notably with upside to our topline our strategic playbook is working and is why I'm. So confident in the next phase of contours evolution even.

That drives competitive separation I'll touch on examples of our elevated demand creation and innovation platforms in a bit.

This strength in our core is complemented by category extensions as we diversify our product assortment beyond denim bottoms global highlights on a reported basis include outdoor up more than 30% in Q3, while western and female also saw positive momentum.

This strength in our core is complemented by category extensions as we diversify our product assortment beyond denim bottoms.

Highlights on a reported basis include outdoor up more than 30% in Q3, while western and female also saw positive momentum.

As we assume a more challenging macroeconomic backdrop and on the bottom line, excluding the duty charge, which Joe will provide more detail on in a bit operating results also exceeded our plan.

Further proof points of our brand's health our D to C business once again delivered broad based strength in the quarter.

Global contour revenue increased 8%, including about a point of excess FX benefit with particular strengths in the U S across both wholesale and DTC.

Globally Cantor <unk> increased 6% led by our own dot com up 10% in the U S. One dot com increased 11% balanced across brands with Wrangler and Lee both experiencing double digit gains in international DTC remained healthy in Q3, increasing 5% with wrangler increasing.

Globally contour <unk> increased 6% led by our own dot com up 10%.

In the U S. One dot com increased 11% balanced across brands with Wrangler and Lee both experiencing double digit gains in international DTC remained healthy in Q3, increasing 5% with wrangler, increasing 21% and Lee, increasing 2% or up 15% ex China.

Within the U S market ongoing strong Pos and share gains were driven by accelerating shipments during the quarter.

From a share perspective according to.

21%, and Lee, increasing 2% or up 15% ex China.

Which focuses on the U S. Total measured market, we continued to outpace the market and our U S. Wholesale in core denim business during the third quarter and here to start Q4, a few notable callouts for the last three months Cantor brands outperformed the market by approximately 140 basis points and in men's bottoms we.

And within International we did see Choppiness during the quarter with expected softness in China more than offsetting reported gains in Europe. Importantly, we are seeing China trends accelerate here in Q4 and continue to anticipate the region to return to significant growth in the quarter.

Outperformed the market and our largest competitor by 170 and over 250 basis points respectively.

Up 20% plus.

DTC and international are key areas of growth for <unk> going forward with significant white space in each as these segments represent only 12 and 21% of our last 12 month mix respectively.

D to C and international are key areas of growth for comps were going forward with significant white space in each as these segments represent only 12 and 21% of our last 12 month mix respectively.

The <unk> investment thesis remains highly differentiate differentiated relative to many of our peers that operate more mature DTC and international businesses and the diversified and accretive growth that these opportunities afford is still very much ahead of us.

<unk> outpaced our largest competitor by over 250 points, while lease men's outperformed by roughly 150 points are.

And we will use ongoing structural gross margin accretion from these areas to help fund amplified investments in critical growth enablers, such as talent innovation and demand creation.

Our share gains in the core are in large part due to the strategic investments in our brands across innovation design and demand creation.

And we will use ongoing structural gross margin accretion from these areas to help fund amplified investments in critical growth enablers, such as talent innovation and demand creation.

That drives competitive separation I'll touch on examples of our elevated demand creation and innovation platforms in a bit.

Creating a virtuous cycle for sustained top line growth over the long term so.

<unk>, a virtuous cycle for sustained top line growth over the long term so.

So let me touch on these a bit more in detail first with demand creation.

This strength in our core is complemented by category extensions as we diversify our product assortment beyond denim bottoms.

So let me touch on these a bit more in detail first with demand creation.

Starting with Wrangler simply put Q3 was as big of a demand creation quarter. The brand has ever experienced and its 75 year history strategic partnerships with Sandro stout, many rodine and Barbie not only support our efforts to reach the female and you've demos, but does so in an elevated brand <unk>.

Will highlights on a reported basis include outdoor up more than 30% in Q3, while western and female also saw positive momentum.

Further proof points of our brand's health our D to C business once again delivered broad based strength in the quarter.

<unk> manner across the globe.

Globally Contoured D to C increased 6% led by our own dot com up 10%.

<unk> manner across the globe.

The wrangler in Barbie collection was our best and fastest selling collaboration ever inspired by powerful Cowgirls. The collection combines heritage denim with bold prints further advancing wranglers diversification strategies to attract new and younger consumers, while remaining authentic to the brand.

In the U S. One dot com increased 11% balanced across brands with Wrangler and Lee both experiencing double digit gains in international D to C remained healthy in Q3, increasing 5% with wrangler, increasing 21% and Lee, increasing 2% or up 15% ex China.

Also in Q3 made by Cowboys for Cowboys took on a whole new meaning as wrangler became the official genes of America's team the Dallas Cowboys.

Our sponsorship will run over the next three years amplified Vienna integrated media platform signage and Activations at AT&T Stadium, social content, featuring players and cheerleaders retail promotions and a monthly concert series disconnection of two iconic American brands doubled down on our Texas.

The sponsorship will run over the next three years amplified Vienna integrated media platform signage and Activations at AT&T Stadium, social content, featuring players and cheerleaders retail promotions and a monthly concert series.

D to C and international are key areas of growth for contour going forward with significant white space in each as these segments represent only 12 and 21% of our last 12 month mix respectively.

Disconnection of two iconic American brands doubled down on our Texas, Heartland, and we couldnt be more excited about future opportunities to build on the partnership.

Heartland and we couldnt be more excited about future opportunities to build on the partnership.

And as we begin Q4, the demand creation momentum for Wrangler continues just yesterday, we tease the launch of our co lab with iconic premium Bourbon brand Buffalo trace finished.

And as we begin Q4, the demand creation momentum for Wrangler continues just yesterday, we tease the launch of our co lab with iconic premium Bourbon brand Buffalo trace.

The K TV investment thesis remains highly differentiate differentiated relative to many of our peers that operate more mature DTC and international businesses and the diversified and accretive growth that these opportunities are for it is still very much ahead of us.

Significantly it kicks off with a launch party next week at New York City Hotspot raise bar and then in December the brand once again takes over Las Vegas at the Wrangler National finals Rodeo. However, this year promises to be even more special as country music superstar and our first female music Endorsee Lady Wilson offer.

Secondly, it kicks off with a launch party next week at New York City Hotspot raise bar and then in December the brand once again takes over Las Vegas at the Wrangler National finals Rodeo. However, this year promises to be even more special as country music superstar and our first female music Endorsee Lady Wilson.

And we will use ongoing structural gross margin accretion from these areas to help fund amplified investments in critical growth enablers, such as talent innovation and demand creation.

A record breaking nine CMA nominations is scheduled to open the rodeo on December 15th.

Our record breaking nine CMA nominations is scheduled to open the rodeo on December 15th Laney will also host a four night concert series sponsored by Wrangler to close out the biggest weekend in rodeo wearing her iconic wrangler flares and bell bottoms on and off stage now turning to the Lee brand Q3 saw.

Creating a virtuous cycle for sustained top line growth over the long term.

<unk> will also host a four night concert series sponsored by Wrangler to close out the biggest weekend in rodeo wearing her iconic wrangler flares and bell bottoms on and off stage now turning to the Lee brand Q3 saw another quarter of tremendous return on marketing investment and importantly, manifested on a global scale.

So let me touch on these a bit more in detail first with demand creation.

Starting with Wrangler simply put Q3 was as big of a demand creation quarter. The brand has ever experienced and its 75 year history strategic partnerships with Sandro stout, many rodine in Barbie not only support our efforts to reach the female and you've demos, but does so in an elevated Brandon.

Another quarter of tremendous return on marketing investment and importantly, manifested on a global scale during the third quarter. The Lee brand launched its newest and most iconic female fit the rider gene, which was inspired by our very first women's denim line to Lady Lee Rider and made modern for today's woman.

During the third quarter, the Lee brand launched its newest and most iconic female fit the rider gene, which was inspired by our very first women's denim line. The Lady Lee Rider and made modern for today's woman the global campaign shop by Marc <unk> and set to the Donnas, who invited view lawn.

Hansen manner across the globe.

The global campaign shop by Marc <unk> and set to the Donnas, who invited you launched mid September and has sparked new excitement in our women's premium denim collection.

<unk> mid September and has sparked new excitement in our women's premium denim collection.

In addition trend right collaborations with culturally relevant brands, such as Dragon Ball Z Roaring Wild and Daydreamer also continue to extend lease reached to a younger more diverse audience.

In addition trend right collaborations with culturally relevant brands, such as Dragon ball Z lowering wild and Daydreamer also continue to extend lease reached to a younger more diverse audience.

Also in Q3 made by Cowboys for Cowboys took on a whole new meaning as wrangler became the official genes of America's team the Dallas Cowboys.

Our sponsorship will run over the next three years amplified Vienna integrated media platform signage and Activations at a T N T stadiums, social content, featuring players and cheerleaders retail promotions and a monthly concert series.

During Q3 lead turned up the heat across southern California, as the Lee and Daydreamer partnership took over the iconic Fred Segal shop on Sunset Boulevard with a two week showcase of the collection. This launch leaned heavily into daydream is la coolest static through the key premium distribution in Fred Segal and revolve and then in September the brand.

Disconnection of two iconic American brands doubled down on our Texas, Heartland, and we couldnt be more excited about future opportunities to build on the partnership.

Hosted a unique one of a kind experiential event at the Ed Sheeran concert at <unk> Stadium in La with attendees spending pacemakers, influencers and celebrities from all over the world and.

Hosted a unique one of a kind experiential event.

The Ed Sheeran concert at <unk> Stadium in La with attendees spending pacemakers, influencers and celebrities from all over the world.

And as we begin Q4, the demand creation momentum for Wrangler continues just yesterday, we teased the launch of our co lab with iconic premium Bourbon brand Buffalo trace citizenry. It kicks off with a launch party next week at New York City Hotspot raise bar and then in December the brand once again takes over Las Vegas at the Wrangler Nash.

And the momentum has carried into Q4 as Lee is currently ramping.

Digital campaigns in support of Ultra Lux and extreme motion innovation platforms.

To further drive brand separation in the marketplace. We are also amplifying our focus on innovation as our pipeline is healthy and accelerating a perfect example of innovation that cuts across both product and manufacturing or integrate platform continues to scale delivering water and cost savings.

To further drive brand separation in the marketplace. We are also amplifying our focus on innovation as our pipeline is healthy and accelerating a perfect example of innovation that cuts across both product and manufacturing are integral platform continues to scale delivering water and cost savings.

Finals Rodeo. However, this year promises to be even more special as country music superstar and our first female music Endorsee Lady Wilson.

We recently announced that we surpassed our 2025 water savings goal of over 10 billion liters of freshwater two years earlier than was targeted this accelerated accomplishment demonstrates our commitment to sustainability and to the effectiveness of the into good program, which also creates an.

Another quarter of tremendous return on marketing investment and importantly, manifested on a global scale during the third quarter. The Lee brand launched its newest and most iconic female fit the writer gene which was inspired by our very first women's denim line. The Lady Lee rider inmate modern for today's woman.

<unk> industry standard for others to follow I am proud of the work we are doing to safe water with platforms like integrate and other cutting edge technologies, such as digital printing driving towards a future where all genes can be created using zero freshwater other.

<unk> industry standard for others to follow I am proud of the work we are doing to safe water with platforms like <unk> and other cutting edge technologies, such as digital printing driving towards a future where all genes can be created using zero freshwater other.

The global campaign shop by Marc <unk> insert to the Donnas, who invited you launched mid September and has sparked new excitement in our women's premium denim collection.

Other innovation platforms, such as extreme motion ever fit and ultra Lux for Lee as well as atg and our performance specialty fishing line Wrangler angler, not only diversify our offering but does so in an elevated way that mixes up AUR and gives the brands increasing permission to play in more premium.

In addition trend right collaborations with culturally relevant brands, such as Dragon Ball Z Roaring Wild in Daydream are also continue to extend lease reached to a younger more diverse audience.

And points of distribution.

Some points of distribution.

Needless to say, we have a ton of brand momentum for the balance of the year and into 2024, just one of the factors that gives me great confidence in the go forward you don't develop this heat without investing behind the brands and a highly productive way from talent to designed to innovation to demand creation, and we will continue to amplify strategic spend.

During Q3 lead turned up the heat across southern California, as the Lee and Daydreamer partnership took over the iconic Fred Segal shop on Sunset Boulevard with a two week showcase of the collection. This launch leaned heavily into Daydream is L. A cooler static through the key premium distribution in Fred Segal and revolve and then in September the.

In support of diversified growth across categories channels and geographies.

<unk> hosted a unique one of a kind experiential event at the Ed Sheeran concert at Sulphide Stadium in L. A with attendees spending tastemaker.

But make no mistake, we love, how we're positioned and taking share within core U S wholesale with incredible partners, such as Walmart, Amazon and target as well as western specialty retailers that align and support our brands value proposition with consumers, especially important given the macro challenges around the world.

Influencers and celebrities from all over the world.

And the momentum has carried into Q4 as Lee is currently ramping.

Digital campaigns in support of Ultra Lux and extreme motion innovation platforms.

To further drive brand separation in the marketplace. We are also amplifying our focus on innovation as our pipeline is healthy and accelerating a perfect example of innovation that cuts across both product and manufacturing are integral platform continues to scale delivering water and cost savings.

Structurally accretive growth, particularly of DTC and international helped to fund. These key investments as does constantly evaluating our operating model.

Structurally accretive growth, particularly of DTC and international helps fund these key investments as does constantly evaluating our operating model.

<unk> ways to reduce non strategic spend simplify processes and enhanced efficiencies, including within our supply chain, our proactive restructuring actions last quarter and amplified inventory actions. We are taking now are good examples of investments healthier foundation of which to build but rest assured we are just in the beginning stages of <unk>.

Our model for the future with substantial opportunity to unlock value over time stay tuned for more here and.

<unk> industry standard for others to follow I am proud of the work we are doing to safe water with platforms like integral and other cutting edge technologies, such as digital printing driving towards the future all genes can be created using zero freshwater other.

And these actions also help accelerate cash generation, creating significant opportunity to return cash to shareholders as evidenced by our recently announced increase to the dividend our capital allocation Optionality remains robust this cash flow optionality when taken with our resilient fundamentals, even during a challenging macro environment creates a.

These actions also help accelerate cash generation, creating significant opportunity to return cash to shareholders as evidenced by our recently announced increase to the dividend our capital allocation Optionality remains robust this cash flow optionality when taken with our resilient fundamentals, even during a challenging macro environment creates a.

Other innovation platforms, such as extreme motion ever fifth and ultra Lux for Lee as well as Atg and a performance specialty fishing line wrangler angler, not only diversify our offering but does so in an elevated way that mixes up aur's and gives the brands increasing permission to play in more premium.

Powerful combination that should support superior tsi overtime, we look forward to sharing more on our long term strategic vision at our Investor Day Joe.

Thank you Scott and thank you all for joining us today.

Before I review, the third quarter, let me say, how honored and appreciative I am to have the opportunity to serve as CFO of contour brands.

And points of distribution.

I am thrilled to reunite with the contour family and I want to express my gratitude to Scott The board and the organization for their support as I transition back into the business.

I feel a tremendous amount of responsibility and stewardship to all contour employees around the globe as well as those that have come before me and built the strong foundation that is in place today.

In support of diversified growth across categories channels and geographies.

But make no mistake, we love, how we're positioned and taking share within core U S wholesale with incredible partners, such as Walmart, Amazon and target as well as western specialty.

I'd also like to extend a special thank you to Ruston, who has been a strong resource for me during the transition he will be missed and we wish him and his family all the best in retirement.

Retailers that align and support our brands value proposition with consumers, especially important given the macro challenges around the world.

With that let's review the third quarter.

Mobile revenue increased 7% compared to the prior year as broad based growth in the U S. In both wholesale and DTC was partially offset by a decline in international or.

Global revenue increased 7% compared to the prior year as broad based growth in the U S. In both wholesale and DTC was partially offset by a decline in international or.

Structurally accretive growth, particularly of DTC and international helps fund. These key investments as does constantly evaluating our operating model finding ways to reduce non strategic spend simplified processes and enhanced efficiencies, including within our supply chain, our proactive restructuring actions last.

Our third quarter results again reflected the strong momentum of our brands as evidenced by continued market share gains and Pos strength across key accounts and distribution channels.

Quarter and amplified inventory actions. We are taking now are good examples of investments healthier foundation of which to build but rest assured we are just in the beginning stages of transform our model for the future with substantial opportunity to unlock value over time stay tuned for more here in.

On a regional basis U S revenue increased 12%.

Direct to consumer increased 7%, including 11% growth in digital.

In the wholesale channel revenue increased 12% with strong performance from both brands.

In addition to strength in our core categories. We also drove growth in outdoor and non denim bottoms as category expansion remains a top strategic priority.

While retailers remain cautious inventory levels in the channel continue to improve and our more balanced as Pos and shipments work towards equilibrium as we enter the holiday period.

And while retailers remain cautious inventory levels in the channel continue to improve and our more balanced as Pos and shipments work towards equilibrium as we enter the holiday period.

Powerful combination that should support superior T. S. R overtime, we look forward to sharing more on our long term strategic vision at our Investor Day Joe.

As expected international revenue decreased 8%, driven mainly by China, which declined 19%.

As we discussed last quarter the recovery in China will not be linear as a result of COVID-19, driven lockdowns and reopening from a year ago.

As we discussed last quarter the recovery in China will not be linear as a result of COVID-19, driven lockdowns and re openings from a year ago.

Thank you Scott and thank you all for joining us today.

Before I review, the third quarter, let me say, how honored and appreciative I am to have the opportunity to serve as CFO of contour brands.

In terms of our outlook, we anticipate more than 20% growth in the fourth quarter and importantly, as we enter 2020 for the underlying fundamentals of our business in the region have improved.

I am thrilled to reunite with the contour family and I want to express my gratitude to Scott The board and the organization for their support as I transition back into the business.

Inventory levels across our retail network have returned to more normalized levels and we are entering next year with a stronger foundation from which to grow.

We see significant long term potential in China, and expect growth to accelerate next year due in part to an increase in the strategic investments we are making in the region.

I'd also like to extend a special thank you to Rustin, who has been a strong resource for me during the transition he will be missed and we wish him and his family all the best in retirement.

In Europe revenue decreased 4% as double digit growth in DTC was offset by a decline in wholesale.

With that let's review the third quarter.

Mobile revenue increased 7% compared to the prior year as broad based growth in the U S. In both wholesale and DTC was partially offset by a decline in international.

While we expect the macro environment to remain difficult in the region near term. We are encouraged by the strength of our DTC business across both brands supported by investments we have been making in the platform.

We expect the macro environment to remain difficult in the region near term. We are encouraged by the strength of our DTC business across both brands supported by investments we have been making in the platform.

Our third quarter results again reflected the strong momentum of our brands as evidenced by continued market share gains and Pos strength across key accounts and distribution channels.

Turning to our brands.

Global revenue for the Wrangler brand increased 9% driven by growth in both wholesale and DTC the ongoing diversification into non denim categories continues to drive brand momentum with particular strength in outdoor and non denim bottoms.

On a regional basis U S revenue increased 12% <unk>.

Direct to consumer increased 7%, including 11% growth in digital.

In the wholesale channel revenue increased 12% with strong performance from both brands.

The brands targeted investments in demand creation strategic partnerships and innovation are continuing to drive strong market share gains across the retail landscape.

In addition to strength in our core categories. We also drove growth in outdoor and non denim bottoms as category expansion remains a top strategic priority.

In the U S revenue increased 10% with wholesale one dot com and brick and mortar all contributing to growth.

In the U S revenue increased 10% with wholesale owned dot com and brick and mortar all contributing to growth.

And while retailers remain cautious inventory levels in the channel continue to improve and our more balanced as Pos and shipments work towards equilibrium as we enter the holiday period.

Wrangler International revenue increased 2% driven by 21% growth in DTC and a modest increase in wholesale.

Now turning to leave global revenue increased 3%.

As expected international revenue decreased 8%, driven mainly by China, which declined 19%.

Growth was driven by strength in the U S with wholesale increasing 23% and one dot com increasing 11%.

Growth was driven by strength in the U S with wholesale increasing 23% and owned dot com increasing 11%.

As we discussed last quarter the recovery in China will not be linear as a result of COVID-19, driven lockdowns and reopening from a year ago.

In addition to growth in core denim non denim bottoms also performed well in the quarter and contributed to growth.

In terms of our outlook, we anticipate more than 20% growth in the fourth quarter and importantly, as we enter 2020 for the underlying fundamentals of our business in the region have improved.

Lee International revenue decreased 13% and Europe revenue decreased 3% with 15% growth in DTC more than offset by a decline in wholesale.

Inventory levels across our retail network have returned to more normalized levels and we are entering next year with a stronger foundation from which to grow.

In APAC as expected revenue decreased 18%.

And finally from a channel perspective U S wholesale increased 12%, while non U S wholesale decreased 10%.

We see significant long term potential in China, and expect growth to accelerate next year due in part to an increase in the strategic investments we are making in the region.

Global direct to consumer was up 6%, including a 10% increase in dot com and brick and mortar up 2%.

Global direct to consumer was up 6%, including a 10% increase in own dot com and brick and mortar up 2%.

In Europe revenue decreased 4% as double digit growth in DTC was offset by a decline in wholesale.

Turning to gross margin as we shared in this morning's release the quarter was impacted by an unanticipated 200 basis point charge from duty expense related to prior periods. The.

The issue was identified late in the quarter and arose from the ERP implementation dating back to 2021.

Excluding the duty expense gross margin was flat versus the prior year at 43, 5%.

Turning to our brands.

Gross margin in the quarter also included the impact of proactive inventory management actions.

These actions relate to clearing through noncore inventory as we aggressively focus on reducing overall inventory levels and exiting 2023 in a clean inventory position.

These actions relate to clearing through noncore inventory as we aggressively focused on reducing overall inventory levels and exiting 2023 in a clean inventory position.

The brands targeted investments in demand creation strategic partnerships and innovation are continuing to drive strong market share gains across the retail landscape.

While these actions have a negative impact on gross margin near term they improve the quality of our inventory and yield additional cash generation.

While these actions have a negative impact on gross margin near term they improved the quality of our inventory and yield additional cash generation.

In the U S revenue increased 10% with wholesale owned dot com and brick and mortar all contributing to growth.

Further excluding the impact of these actions and the duty charge gross margin increased versus last year, which was largely consistent with our expectations.

Wrangler International revenue increased 2% driven by 21% growth in DTC and a modest increase in wholesale.

The increase in gross margin was driven by channel mix pricing and lower transitory costs, such as air freight.

Now turning to leave.

SG&A expense was $186 million as a percentage of revenue SG&A decreased 30 basis points to 28, 4% versus adjusted SG&A in the prior year.

Strategic investments in DTC and demand creation as well as increased distribution costs were partially offset by disciplined management of discretionary expenses and operating leverage.

Okay.

Operating income was $85 million as reported or <unk> $99 million, excluding the duty charge, an increase of 10% compared to adjusted operating income last year.

Excluding the duty charge operating margin increased 30 basis points to 15, 1%.

Yeah.

Earnings per share was $1 five compared to adjusted EPS of $1 11 last year. The quarter included a 17 negative impact from the duty charge. Excluding the duty charge Q3, EPS was $1 22, representing a 10% increase versus the prior year ahead of our.

Our expectations.

Now turning to our balance sheet third quarter inventory decreased 11% compared to last year, we made more progress than expected on inventory during the quarter due to stronger than expected revenue and the inventory management actions.

While inventory levels are still elevated we remain comfortable with the quality of our inventory and the ability to support our forward growth plans.

We expect inventory levels to decrease by approximately $100 million by the end of the year to approximately $500 million.

We finished the third quarter with net debt or long term debt less cash of $708 million and $78 million of cash on hand.

Net leverage ratio, our net debt divided by trailing 12 month adjusted EBITDA was one nine times at the end of the quarter within our targeted range we.

Our net leverage ratio our net debt divided by trailing 12 month adjusted EBITDA was one nine times at the end of the quarter within our targeted range.

We expect net leverage to approximate one six times by the end of 'twenty three.

And as previously announced our board of directors declared a regular quarterly cash dividend of <unk> 50 per share representing a 4% increase in.

And as previously announced our board of directors declared a regular quarterly cash dividend of <unk> 50 per share representing a 4% increase.

And finally at the end of the third quarter, we had $62 million remaining under our share repurchase authorization, we did not repurchase shares in the third quarter.

Onto our outlook.

Revenue is expected to increase approximately 1% compared to 2022.

This compares to our previous outlook of a low single digit increase our.

Our updated outlook includes the following expectations first we continue to anticipate a more challenging U S macro environment in the fourth quarter we.

We are pleased with the strength, we delivered in the third quarter and are encouraged that positive Pos trends have continued to start the fourth quarter. We do however believe it prudent to plan the business conservatively given the macro uncertainty.

Second we expect relatively stronger performance in international markets in the fourth quarter, driven by China as well as continued growth from our global DTC business.

Gross margin is expected to approximate 42, 5% on an adjusted basis, including a 40 basis point impact from the duty charge as well as the proactive inventory management actions.

This compares to our prior outlook of 43, 5% to 44%.

Our updated outlook implies fourth quarter gross margin expansion of approximately 300 basis points driven by ongoing structural mix strategic pricing and a decrease in input costs, partially offset by inventory management actions.

As we look to 2024 based on current visibility, we expect the combination of lower input costs and structural margin mix, mainly DTC and international to drive significant gross margin expansion.

While we expect this to result in accelerated earnings growth. It also provides the investment capacity needed to continue investing behind our brands and enterprise strategy.

SG&A is now expected to increase at a low single digit rate on an adjusted basis compared to 2022.

We will continue to prioritize investments in our brands and capabilities in support of long term accretive growth, while remaining diligent with regard to discretionary spending.

EPS is now expected to approximate $4 35 on an adjusted basis, including an approximate 15 negative impact from the duty charge.

Excluding the duty charge full year adjusted EPS is expected to approximate $4 50.

We expect full year operating cash flow of approximately $335 million.

We expect to end the year with approximately $500 million of inventory, representing a more than 15% decrease compared to the prior year.

We also expect to end 2023, with approximately $200 million of cash on hand, and roughly $700 million of liquidity supporting significant capital allocation Optionality as we move into next year.

I'd like to take a few moments and highlight the fundamental profile of our business in the second half of 'twenty three based on our updated full year outlook.

Our quarterly results. This year have been volatile from a comparability standpoint, making it somewhat difficult to understand the true underlying trajectory of our business as we move into next year.

Looking at our business by half presents a cleaner picture and one that is more representative of our expectations moving forward the earnings power of the business and the uniqueness of our model.

For the second half, we expect approximately 2% revenue growth and excluding the duty charge close to 200 basis points of gross margin expansion and double digit operating earnings growth.

While we expect macro challenges to persist through at least the first half of 2020 for the.

The drivers of our second half 'twenty three fundamentals, mainly gross margin expansion will carryover into next year and support accelerated earnings growth and cash generation.

Additionally, we expect to achieve more steady state levels of inventory further contributing to an increase in cash generation and we have a balance sheet that can support significant capital allocation optionality.

While we will remain disciplined and rigorous with regard to capital deployment and balance sheet management, we have a number of levers to pull to continue driving strong total returns for stakeholders, regardless of the operating environment.

To wrap up I'd like to offer some perspective based on my observations through the first couple of months at contour.

First.

I am confident and contours opportunity to deliver sustainable growth and returns on capital.

Representing a more than 15% decrease compared to the prior year.

The brands are strong we are appropriately investing behind a focused strategy and there is significant white space to drive accretive growth through expansion and under indexed channels and categories.

Brands are strong we are appropriately investing behind a focused strategy and there is significant white space to drive accretive growth through expansion and under indexed channels and categories.

We also expect to end 2023, with approximately $200 million of cash on hand, and roughly $700 million of liquidity supporting significant capital allocation Optionality as we move into next year.

Second there is significant opportunity to expand gross margin.

I'd like to take a few moments and highlight the fundamental profile of our business in the second half of 'twenty three based on our updated full year outlook.

We have visibility to lower input costs next year and structural margin drivers such as DTC and international will support sustained gross margin expansion over the medium to long term.

Further our global supply chain strategy is evolving and we have identified a number of initiatives, including SKU rationalization that we expect to drive incremental gross margin benefit and net working capital reductions over a multiyear horizon beyond our previous expectations.

Looking at our business by half presents a cleaner picture and one that is more representative of our expectations moving forward the earnings power of the business and the uniqueness of our model.

These benefits are both upstream and downstream and will fundamentally change how we go to market and our operating model.

For the second half, we expect approximately 2% revenue growth and excluding the duty charge close to 200 basis points of gross margin expansion and double digit operating earnings growth.

Third we are committed to driving greater efficiency in the business.

We will pursue a number of initiatives to reduce complexity leverage our platforms increase agility improve.

While we expect macro challenges to persist through at least the first half of 2020 for.

We will pursue a number of initiatives to reduce complexity leverage our platforms increase agility improve.

The drivers of our second half 'twenty three fundamentals, mainly gross margin expansion will carryover into next year and support accelerated earnings growth and cash generation.

Improved profitability and importantly, create additional investment capacity for our brands.

Profitability and importantly, create additional investment capacity for our brands.

These initiatives will unfold over a multiyear horizon and will further transform our operating model and unlock significant value.

We look forward to sharing more details on these topics and the context of our updated strategic plan at our Investor Day next year.

This is an important time for contour, we are focused on fundamentals execution and long term tsi.

This is an important time for contour, we are focused on fundamentals execution and long term CSR.

I am confident we have the team in place to deliver on the opportunities ahead and excited to partner and drive the next chapter of growth and value creation for contour.

To wrap up I'd like to offer some perspective based on my observations through the first couple of months at contour.

This concludes our prepared remarks, I will now turn the call back to the operator.

First.

Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time I'll.

I am confident and contours opportunity to deliver sustainable growth and returns on capital.

Thank you ladies and gentlemen, the floor is now open for questions. If you would like.

To ask a question. Please press star one on your telephone keypad at this time I'll.

A confirmation tone will indicate your line is in the question queue you.

You May press Star two if you would.

You May press Star two if you will.

Tim will for your question from the queue.

For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Second there is significant opportunity to expand gross margin.

Again, Thats Star one to register a question at this time.

We have visibility to lower input costs next year and structural margin drivers such as DTC and international will support sustained gross margin expansion over the medium to long term.

Today's first question is coming from <unk> <unk> of UBS. Please go ahead.

Today's first question is coming from Mauricio Serna of UBS. Please go ahead.

Thanks, Good morning, and thanks for taking my questions, maybe just to start with the duty expense can you give us more color around it should we think about the fiscal year 'twenty three EPS guide now on 450 really and that on the gross margin and inventory actions and it's great to see the sequential improvement.

Thanks, Good morning, and thanks for taking my questions. Maybe just we'll start with the duty expense can you give us more color around it should we think about fiscal year <unk> EPS guide now on 450 really and that on the gross margin and inventory actions and it's great to see the sequential improvement.

They're just could you talk more about that.

Then there.

Could you talk more about.

Amplified inventory actions taken still.

These benefits are both upstream and downstream and will fundamentally change how we go to market and our operating model.

<unk> do you want to be proactive and make sure you can come out in a clean position out of 2023 that the Remy.

But do you want to be proactive and make sure you come out in a clean position out of 2023 that the Remy.

The way to really think about it.

Third we are committed to driving greater efficiency in the business.

Hey, Mario Good morning, It's Joe maybe I'll start with the duty and I'll, let Scott kickoff the inventory conversation. So yeah on the duty the issue primarily relates to prior periods 21, and 2022, specifically as we stated in the prepared remarks, we identified the issue late.

Hey, Mauricio good morning, it's Joe maybe I'll start with the duty and I'll, let Scott kickoff the inventory conversation. So yeah on the duty the issue primarily relates to prior periods 21, and 2022, specifically as we stated in the prepared remarks, we identified the issue late.

We will pursue a number of initiatives to reduce complexity leverage our platforms increase agility improve.

Profitability and importantly, create additional investment capacity for our brands.

In the quarter and it really dates back to the ERP implementation implementation and so perspective here I think may be helpful. The duty charge was $13 million over a two and a half year period on total cost of goods sold over that same timeframe of several billion dollars. So.

These initiatives will unfold over a multiyear horizon and will further transform our operating model and unlock significant value.

We look forward to sharing more details on these topics and the context of our updated strategic plan at our Investor Day next year.

We won't get into the accounting technicalities as to as to why the charge is presented as GAAP versus adjusted but the charge was a prior period adjustment really a correction of an error and just out of period. So clearly this charge was not contemplated in our prior outlook and as you think about the appropriate baseline for underlying.

This is an important time for contour, we are focused on fundamentals execution and long term CSR.

As to as to why the charge is presented as GAAP versus adjusted but the charge was a prior period adjustment really a correction of an error and just out of period. So clearly this charge was not contemplated in our prior outlook and as you think about the appropriate baseline for underlying earnings in 'twenty three we view.

I am confident we have the team in place to deliver on the opportunities ahead and excited to partner and drive the next chapter of growth and value creation for contour.

This concludes our prepared remarks, I will now turn the call back to the operator.

Earnings in 'twenty, three we view, a $1, 22% and $4 50 of adjusted EPS, respectively as more representative going forward.

22, and <unk> 50 of adjusted EPS, respectively, as more representative going forward.

Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time, a confirmation tone will indicate your line is in the question queue.

Fantastic Thanks, Joe Mario Thanks for the question.

We've thought about what we wanted to do to position ourselves for 'twenty, four and put our teams in the position.

You May press Star two if you would.

The term of your question from the queue.

And we started this process a little bit more ACO with our manufacturing downtime in the beginning of the year and then we had such broad based strength in our business that we knew we could do this we knew we could be aggressive and we could clean everything up it was the right thing to do from a hygiene standpoint for our business and as you know it frees up a tremendous amount of cash that we can invest.

For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Again, Thats Star one to register a question at this time.

Today's first question is coming from <unk> <unk> of UBS. Please go ahead.

Thanks, Good morning, and thanks for taking my questions, maybe just to start with the duty expense can you give us more color around it should we think about fiscal year 'twenty three EPS guide now on 450 really and that on the gross margin and inventory actions you know, it's great to see the sequential improvement.

Back in the brands back in our people, which is really great. We're investing back in the business because of this it optimizes our distribution centers and our supply chain, which is great and when you think about an action like this what it does is it has benefits in almost every aspect of our business. So we're really excited about where we stand from an inventory standpoint heading into 'twenty.

They're just could you talk more about that.

It's been difficult for a lot of people last couple of years, but right now we are in a fantastic position Joe any additional comments there.

Amplified inventory actions taken still.

And it's been difficult for a lot of people last couple of years, but right now we are in a fantastic position Joe any additional comments there and then maybe just a few these actions as Scott said, we're proactive.

<unk> do you want to be proactive and make sure you can come out in a clean position out of 2023 that the Remy.

Just a few these actions as Scott said, we're proactive.

The way to really think about it.

Were the right decisions for the business.

We're clearing through noncore inventory the majority of our inventory remains core over over 85% or so in terms of these actions are inventory levels continue to normalize we're almost there.

In some respects these actions our evergreen, but in terms of the more elevated impact.

We'll be through that pretty much by the end of this year.

Got it congratulations and thanks for answering the questions.

Got it and congratulations and thanks for answering the questions.

Thank you. The next question is coming from Bob <unk> of Guggenheim. Please go ahead.

Hi, Good morning, guys and Joe welcome back congratulations.

Bob.

I guess I have two questions I'd like to really focus on the first one.

I guess I have two questions I'd like to really focus on the first one Scott from your perspective, when you look at the macro.

From your perspective, when you look at the macro.

Earnings in 'twenty, three we view $1 22, and $4 50 of adjusted EPS, respectively as more representative going forward.

Can you touch a lot of different price points now.

Can you touch a lot of different price points now and distribution channels.

Distribution channels.

Can you just give us maybe your perspective on a high level around the consumer.

Just give us maybe your perspective on a high level around the consumer.

Fantastic Thanks, Joe Mario Thanks for the question.

Around the macro sort of even more recent than in the sort of the next few weeks as you think about the holiday season and then the second question I have is you.

We've thought about what we wanted to do to position ourselves for 'twenty, four and put our teams in the position.

The macro sort of even more recent and in the sort of the next few weeks as you think about the holiday season and then the second question I have is you talked a lot about the share gains in some of the point of sale strength, you've seen in the third quarter. It seems like youre seeing it in the fourth quarter can you just talk a little bit more.

You talked a lot about the share gains in some of the point of sale strength that you've seen in the third quarter. It seems like you are seeing it in the fourth quarter can you just talk a little bit more about sort of the dynamics maybe.

About sort of the dynamics maybe.

Pricing competition anything more around what you see unfolding.

Around these share gains and this sort of categories that youre competing in thanks.

Sure you bet good to hear your voice Bob. Thanks for the question I'll start and then I'll toss it over to Joe will kind of do a little bit.

Sure you bet good to hear your voice Bob. Thanks for the question I'll start and then I'll toss it over to Joe will kind of do a little bit of both on this one but from a macro standpoint, we've talked a little bit about the fact that we thought the consumer was going to be a little stressed here as the year went on and hopefully that will start to mitigate here going into 'twenty, four but I actually think that we're going to have a good holiday.

Both on this one but from a macro standpoint, we've talked a little bit about the fact that we thought the consumer was going to be a little stressed here as the year went on and hopefully that will start to mitigate here going into 'twenty, four but I actually think that we're going to have a good holiday season, the consumer always shows up around the holiday season, and why I think that for US is that we've taken a lot of share here in the <unk>.

It's been difficult for a lot of people last couple of years, but right now we are in a fantastic position Joe any additional comments there and then maybe just a few these actions as Scott said, we're proactive.

Season, the consumer always shows up around the holiday season, and why I think that for US is that we've taken a lot of share here in the last couple of years, which has been really important for our brands. So what that means is you see our brands in a more elevated way you also see our brands and our bigger distribution from a real estate standpoint, and whats happening for US is you talk about <unk>.

Were the right decisions for the business.

Last couple of years, which has been really important for our brands. So what that means is you see our brands in a more elevated way and you also see our brands and our bigger distribution from a real estate standpoint, and whats happening for US is you talk about our brands are priced right you get a tremendous amount of value at a really good price, but there's two other components that have been really important for us.

We're clearing through noncore inventory the majority of our inventory remains core over over 85% or so in terms of these actions are inventory levels continue to normalize we're almost there.

Brands are priced right you get a tremendous amount of value at a really good price, but there's two other components that have been really important for us one we've taken our demand creation to another level. So people are walking into our big customers and are big consumers of walking in and saying Hey, we're our wrangler and Lee have to have them I am seeing them everywhere I am seeing them if I go to Dallas.

In some respects these actions our evergreen, but in terms of the more elevated impact.

One we've taken our demand creation to another level. So people are walking into our big customers and are big consumers of walking in and saying Hey, we're our wrangler and Lee have to have them I am seeing them everywhere I am seeing them. If I go to Dallas Cowboys' game I'm seeing a if I go to Austin City limits, we see these big RV kickoff in collections. So we're seeing some really interesting.

We'll be through that pretty much by the end of this year.

Got it congratulations and thanks for answering the questions.

Thank you. The next question is coming from Bob <unk> of Guggenheim. Please go ahead.

How boys game I'm seeing a if I go to Austin City limits, we see these big RV kickoff and collection. So we're seeing some really interesting things and people are migrating to our brands at a really good price. So I think we positioned ourselves really well as we've thought about how we distance ourselves from everybody else, but there's one other little piece here, that's really interesting for.

Hi, Good morning, guys and Joe welcome back congratulations.

Things and people are migrating to our brands at a really good price. So I think we positioned ourselves really well as we've thought about how we distance ourselves from everybody else, but there's one other little piece here, that's really interesting for us as a company as we move forward and that's it from a DTC standpoint, and Bob you've been with US on this journey and you remember we talked a lot.

Bob.

I guess I have two questions I'd like to really focus on the first one Scott from your perspective, when you look at the macro.

For us as a company as we move forward and that's it from a DTC standpoint, and Bob you've been with US on this journey and you remember we talked a lot about leading with digital leading with digital leading with digital because we never invested in digital in the old World five years ago, and so we did that and we've got that platform up and running but now we're really spending some of this extra cash that we have in the investment.

Can you touch a lot of different price points now and distribution channels.

About leading with digital leading with digital leading with digital because we never invested in digital in the old World five years ago, and so we did that and we've got that platform up and running but now we're really spending some of this extra cash that we have in the investment dollars that we have on building our D to C network globally. In addition to that really building out our international platform.

Just give us maybe your perspective on a high level around the consumer.

The macro sort of even more recently and in the sort of the next few weeks as you think about the holiday season and then the second question is you talked a lot about the share gains in some of the point of sale strength, you've seen in the third quarter. It seems like you are seeing it in the fourth quarter can you just talk a little bit more.

Dollars that we have on building our D to C network globally. In addition to that really building out our international platforms, two and the key for US is that it's pretty evergreen because we're fairly new in both of those and we have a lot ahead of us versus some of our competition. So that's why I feel really good about our consumer and how we're going to <unk>.

Two and the key for US is that it's pretty evergreen because we're fairly new in both of those and we have a lot ahead of us versus some of our competition. So that's why I feel really good about our consumer and how we're going to control our own destiny from this moment here going forward I'm pretty excited about our future here, Joe any any comments.

About sort of the dynamics maybe.

Pricing competition anything more around what you see unfolding.

Troll, our own destiny from this moment here going forward.

Around these share gains and the sooner categories that youre competing in thanks.

Pretty excited about our future here, Joe any any comments about share gains in pricing.

About share gains in pricing.

A few on pricing Bob so pricing for US has been a tailwind this year theres really nothing fundamentally different compared to the prior outlook.

On pricing, Bob so pricing for us has been a tailwind this year theres really nothing fundamentally different compared to the prior outlook on the pricing front.

Pricing front.

As Scott said, our market share gains remained strong.

Scott said, our market share gains remained strong.

A formula to it.

Performance at POS Pos remains strong these brands are performing at retail and we were very strategic with pricing over the past couple of years.

POS remains strong these brands are performing at retail and we were very strategic with pricing over the past couple of years and pricing is a conversation with retailers as it always is but it's just just one factor in terms of.

<unk> is a conversation with retailers as it always is but it's just just one factor in terms of.

The number of levers we have to pull on the gross margin front.

Thank you very much.

Thanks, Bob.

Thank you. The next question is coming from <unk> <unk> of Goldman Sachs. Please go ahead.

Thank you. The next question is coming from <unk> <unk> with Goldman Sachs. Please go ahead.

Good morning, and thank you for taking our question Scott.

Good morning, and thank you for taking our question.

Scott I wanted to follow up on Bob's question, and just get a little bit more sense of what's changing and the macro outlook. That's caused you to be a little bit more cautious on the year and it sounds like a little more caution into the first half of next year.

How boys game I'm seeing if I go to Austin City limits, we see these big RV kickoff in collections. So we're seeing some really interesting things and people are migrating to our brands at a really good price. So I think we positioned ourselves really well as we've thought about how we distance ourselves from everybody else, but there's one other little piece here, that's really interesting for.

Ongoing strength of your brands and the share gains is there any one particular region channel.

Type of product.

Causing this incremental conservatism.

This incremental conservatism.

Yes, So brook not cautious affiliate all still feel great about the business from the standpoint of our Pls. Our Pos is still strong and continues to be positive now our customer might be a little bit more cautious in their ordering patterns and what have you, but let me be really clear here. This is a really interesting point because our gains are so strong share.

Yes, So brook not cautious really at all still feel great about the business from the standpoint of our Pls. Our Pos is still strong and continues to be positive now our customer might be a little bit more cautious in their ordering patterns and what have you, but let me be really clear. This is a really interesting point because our gains are so strong share.

Our gains are Pos is so good and our demand creation right now is hitting on all cylinders. It creates an atmosphere, where you have to go ahead and order our products. So I feel really good about what's happening in our business right now.

Gains are Pos is so good and our demand creation right now is hitting on all cylinders. It creates an atmosphere, where you have to go ahead and order our products. So I feel really good about what's happening in our business right now I mean.

I've been here now as the CEO for five years and I've told the team here recently I have never felt better than I feel right. Now. This team. This business. These brands the product that we're creating the decisions we're making.

Troll, our own destiny from this moment here going forward I'm pretty excited about our future here, Joe any any comments about share gains in pricing, yes, just a few on pricing Bob so pricing for US has been a tailwind this year theres really nothing fundamentally different compared to the prior outlook on the pricing front.

I feel really confident so not for me.

Joe anything to add there.

No I think you covered it.

No I think you've covered it.

Great and then maybe a follow up for Joe can you elaborate on the incremental changes in your outlook for gross margin beyond the duty charge how much additional margin headwind are you seeing this year from inventory clearance action and then can you contextualize the level of transitory headwinds that are still weighing on gross margin for Q1, we might see some.

As Scott said, our market share gains remained strong.

Performance at POS Pos remains strong these brands are performing at retail and we were very strategic with pricing over the past couple of years and pricing is a conversation with retailers as it always is but it's just just one factor in terms of.

Better visibility on balance.

Better visibility on those.

Returning to normalized levels into 2024, thank you.

Sure Brooks so for the quarter, excluding the duty charge. The gross margin was was flat that.

Sure Brooks so for the quarter, excluding the duty charge. The gross margin was was flat.

The number of levers we have to pull on the gross margin front.

That included the inventory management actions that we took that was about 30 basis points. So excluding those the gross margin increased year over year pretty much as we expected and the main drivers of that were really price mix and lower transitory costs such as such.

Thank you very much.

Thanks, Bob.

Thank you. The next question is coming from <unk> <unk> of Goldman Sachs. Please go ahead.

Good morning, and thank you for taking our question.

Such as air freight offset by still higher input costs moderating as we expected versus Q2, but still higher so for the full year, we were at $42 five or <unk> 42, nine when you exclude the duty charge, that's about 60 basis points off of the low end of our of our prior outlook and the biggest driver of that.

Such as air freight offset by still higher input costs moderating as we expected versus Q2, but still higher so for the full year, we were at $42 five or 42 nine when you exclude the duty charge, that's about 60 basis points off of the low end of our of our prior outlook and the biggest driver of that.

That really is the inventory actions that we took there is a little bit of mix related impact in there as we as we tightened up the revenue range and you've got ongoing strength from.

Type of.

Product, that's causing this incremental conservatism.

Yes, So brook not cautious affiliate all still feel great about the business.

From U S wholesale, but I think importantly for Q4.

From the standpoint of <unk> Pos is still strong and continues to be positive now our customer might be a little bit more cautious in their ordering patterns and what have you, but let me be really clear. This is a really interesting point because our gains are so strong share gains. Our Pos is so good and our demand creation right now is hitting on all cylinders.

From U S wholesale, but I think importantly for Q4.

We've got about 300 basis points of expansion.

Embedded in the outlook again, the drivers are really the same pricing mix, but but as we've said all year, we have input costs flipping to a tailwind in the fourth quarter and that will really continue into next year.

Embedded in the outlook again, the drivers are really the same pricing mix, but but as we've said all year, we have input cost flipping to a tailwind in the fourth quarter and that will really continue into next year.

It creates an atmosphere, where you have to go ahead and order our products. So I feel really good about what's happening in our business right now.

Thank you so much I will pass it on.

Sure.

Okay.

Thank you. The next question is coming from will Garner with Wells Fargo. Please go ahead.

Hey, guys. Thanks for taking my question.

Just.

So.

Fair enough.

Cash generation here.

Cash generation, you're you're improving your inventory significantly here could you just discuss.

Improving your inventory significantly here could you just discuss.

Adam.

I feel really confident so not for me.

Joe anything to add there.

Your capital allocation Optionality here.

No I think you've covered it.

I noticed you didn't have any share purchases. This quarter just can you maybe discuss how youre thinking about that going forward.

Yeah.

Yes. So go ahead, Joe and then maybe maybe I'll jump in at the end, yes, maybe I'll start.

So on the capital allocation front the priorities are unchanged organic reinvestment in the business given the performance we have across both brands maintaining.

So on the capital allocation front the priorities are unchanged organic reinvestment in the business given the performance we have across both brands.

Our visibility on those.

Returning to normalized levels into 2024, thank you.

Maintaining that superior dividend, which you saw what we did this quarter and then we've got share repurchases and M&A. So I think near term, we're continuing to focus on working capital improvement, we're really pleased with the progress on the inventory front and I think we're almost there.

Sure sure Brooks, so for the quarter, excluding the duty charge. The gross margin was was flat.

On the inventory side Leverages in good shape. It will come down further next year as we expect an increase in cash generation and gross margin recovers and our inventory normalizes. Further so we've got a lot of Optionality, we're going to remain really disciplined here, but certainly an opportunity to more actively deploy capital.

On the inventory side Leverages in good shape idle come down further next year as we expect an increase in cash generation and gross margin recovers and our inventory normalizes. Further so we've got a lot of Optionality, we're going to remain really disciplined here, but certainly an opportunity to more actively deploy capital.

<unk> tsi accretive manner.

So just a quick comment.

We agree with everything Joe said, obviously right, but if you think about how we think about this as a company and how pleased we are with the position that we're in and if you think about the industry in the world that we operate in right now to have a balance sheet like this to be in the position that we're in to be able to do what we need to do to drive this business and I think the other thing that makes me more excited about anything.

That really is the inventory actions that we took there is a little bit of mix related impact in there as we as we tightened up the revenue range and you've got ongoing strength from.

From U S wholesale, but I think importantly for Q4, we've got about 300 basis points of expansion.

Or anything that we've talked about is the fact that we can do multiple things we arent tied to just one thing by any you saw in my prepared remarks, and Joe's remarks, we increased our dividend that was just one thing we did recently, but we have the ability to do multiple things at the same time and I think being in that position in this day and age and the time in the environment right now really puts us at a big big distinctive.

Anything that we've talked about is the fact that we can do multiple things we arent tied to just one thing by any you saw in my prepared remarks, and Joe's remarks, we increased our dividend that was just one thing we did recently, but we have the ability to do multiple things at the same time and I think being in that position in this day and age and the time in the environment right now really puts us at a big big distinctive.

And the outlook again, the drivers are really the same pricing mix, but but as we've said all year, we have input cost flipping to a tailwind in the fourth quarter and that will really continue into next year.

Thank you so much I will pass it on.

Sure.

Advantage, especially with these brands and how they're operating right now.

Vantage, especially with these brands and how they're operating right now.

Thank you. The next question is coming from will Garner with Wells Fargo. Please go ahead.

Okay, and maybe just one follow up so on SG&A you are cutting for mid single digit growth.

And maybe just one follow up so on SG&A you are cutting for mid single digit growth.

Hey, guys. Thanks for taking my question.

Just to start off.

Low single digit growth can you just discuss where youre taking costs out and maybe if there is opportunity in the next year to continue to do so.

Low single digit growth can you just discuss where you're taking costs out and maybe if there is opportunity in the next year to continue to do so.

Cash generation here.

Improving our inventory significantly here could you just discuss.

Yes.

Yeah, I'll take that so really no change to the investments and the strategic priorities DTC demand creation and innovation. The reduction is really on the discretionary expense side, and we're just being a little bit more cautious.

Your capital allocation Optionality here.

Take that so really no change to the investments and the strategic priorities DTC demand creation and innovation. The reduction is really on the discretionary expense side, and we're just being a little bit more cautious.

I noticed you didn't have any share share purchases. This quarter. Just can you maybe discuss how youre thinking about that going forward.

Yeah.

Yes. So go ahead, Joe and then maybe maybe I'll jump in at the end, yes, maybe I'll start.

Given our outlook on the overall environment.

So on the capital allocation front the priorities are unchanged organic reinvestment in the business given the performance we have across both brands maintain.

Great I'll pass along.

Great I'll pass it on thank you.

Thank you.

Hello.

Thank you. The next question is coming from Jim Duffy of Stifel. Please go ahead.

Hi, This is Peter Mcgoldrick on for Jim. Thanks for taking my question and welcome Joe.

First on free cash flow can you talk about the puts and takes of the operating cash flow guidance I recognize this is a new guidance slide item, but with inventory managed more tightly than previously anticipated I was curious to get a sense of the working capital items and other drivers of the $335 million operating.

On the inventory side leverage is in good shape. It will come down further next year as we expect an increase in cash generation and gross margin recovers and our inventory normalizes. Further so we've got a lot of Optionality, we're going to remain really disciplined here, but certainly an opportunity to more actively deploy capital.

Curious to get a sense of the working capital items and other drivers of the $335 million operating cash flow guide.

Cash flow guide.

Yes, so I'll take that Peter how are you doing.

Yes, so I'll take that Peter how you doing.

Yes, so we've got a pretty strong fourth quarter in terms of cash generation, that's really two things margin recovery in the business, mainly driven by gross margin and then further unwinding of the networking capital mainly inventory. So we've got about $335 million for the year I think we're somewhere around 175 or 180 million.

And Ah GSR accretive manner.

So just a quick comment.

In the fourth quarter, and roughly $100 million of that will be a further reduction in overall inventory levels.

Okay, and one follow up as we zoom out and think of the long term financial capacity of the business can you discuss the structural gross margin potential and any updated assessment you might have a bridge towards the prior 46% gross margin potential outlook.

Okay, and one follow up as we zoom out and think of the long term financial capacity of the business can you discuss the structural gross margin potential and any updated assessment you might have of a bridge towards the prior 46% gross margin potential outlook.

Yeah, I'll start so nothing nothing fundamentally different Peter I think we still see that algorithm largely intact youll have the structural margin drivers in DTC and international as input costs normalize here, we're going to recover a lot of what we lost over the past couple.

Yeah, I'll start so nothing nothing fundamentally different Peter I think we still see that algorithm largely intact.

Advantaged, especially with these brands and how they're operating right now.

And maybe just one follow up so on SG&A you are cutting for mid single digit growth.

Have the structural margin drivers in DTC and international as input costs normalize here, we're going to recover a lot of what we lost over the past couple of years from inflation and supply chain disruption and then we've got a handful of other initiatives that I talked about in my prepared remarks that are more mid to longer term in nature.

Low single digit growth can you just discuss where youre taking costs out and maybe if there is opportunity in the next year to continue to do so.

<unk> years from inflation and supply chain disruption and then we've got a handful of other initiatives that I talked about in my prepared remarks that are more mid to longer term in nature on the supply chain front that are that are significant right. These are gross margin and net working capital related.

Yes.

On the supply chain front that are that are significant right. These are gross margin and net working capital related.

Given our outlook on the overall environment.

For more details on those but those will unfold over a multiyear period and we may start to see some of those bear fruit in the second half of next year and I would reiterate what Joe said here I think there is one really important point that we've talked a lot about as a team we went through.

We will share more details on those but those will unfold over a multiyear period and we may start to see some of those bear fruit in the second half of next year and I would reiterate what Joe said here I think there's one really important point that we've talked a lot about as a team. We went through a spin obviously everybody knows that then a very difficult ERP as everyone knows when you do an ERP it takes up a lot.

Great I'll pass it on thank.

Thank you.

Hello.

Thank you. The next question is coming from Jim Duffy of Stifel. Please go ahead.

Hi, This is Peter Mcgoldrick on for Jim. Thanks for taking my question and welcome Joe.

Then obviously everybody knows that then a very difficult ERP as everyone knows when you do an ERP. It takes up a lot of mine space for your entire organization now you've got a lot of bright people, a really talented team theyre going to focus their energies on this back end supply chain that Joe is now talked about a couple of times and we're going to put a lot of effort and energy into that one of the things Thats great.

<unk> space for your entire organization.

Now you've got a lot of bright people, a really talented team theyre going to focus their energies on this back end supply chain that Joe was now talked about a couple of times and we're going to put a lot of effort and energy into that one of the things Thats great about here is that we already do it really well and we're going to enhance that going forward. So we see opportunity there as Joe has mentioned and we've got a lot of people there.

About here is that we already do it really well and we're going to enhance that going forward. So we see opportunity there as Joe has mentioned and we've got a lot of people that are going to be focused on that we freed up some of their time.

Operating cash flow guide.

Yes, so I'll take that Peter how are you doing.

And to be focused on that we freed up some of their time.

Thank you.

Yes.

Thank you. The next question is coming from Paul Cooney of Barclays. Please go ahead.

Hey, good morning, Thanks for taking my question and Joe Good to hear from you guys.

Hey, good morning, Thanks for taking my question and Joe Good to hear from you again.

First can you talk about the margin performance by brand it looks like the operating margin fell almost 350 basis points versus regular down 25, what was the driver of the differential between the two I have a follow up.

In the fourth quarter, and roughly $100 million of that will be a further reduction in overall inventory levels.

Yes, Paul if youre looking at the reported numbers you've got the duty charge embedded in there. So there's some noise in there related to that.

Is that primarily falling on Lee.

Okay.

Yeah.

No it would be it would be both brands.

Okay.

Second I guess.

Second I guess as.

As we look into next year, and we think about SG&A, how should we think about SG&A growth relative to the low single digit this year, especially given the investments that youre, making into the business.

Yes, I think we'll hold on.

From inflation and supply chain disruption and then we've got a handful of other initiatives that I talked about in my prepared remarks that are more mid to longer term in nature on the supply chain front that are that are significant right. These are gross margin and net working capital related.

Yes, I think we'll hold on.

The specific guidance for next year, but I would say just from a construct standpoint, we'll continue to look to distort investment towards the areas, we talked about DTC demand creation and innovation, while we hold the line on discretionary expense.

Specific guidance for next year, but I would say just from a construct standpoint, we'll continue to look to distort investment towards the areas, we talked about DTC demand creation and innovation, while we hold the line on discretionary expense.

Share more details on those but but those will unfold over a multiyear period and we may start to see some of those bear fruit in the second half of next year.

And look to leverage those pretty aggressively we do continue to have opportunities to drive further efficiency in the business I talked about that a little bit in my prepared remarks, and we will talk about where and how thats going to come to life in the context of our plan for next year.

I'd reiterate what Joe said here I think there is one really important point that we've talked a lot about as a team. We went through spin obviously, everybody knows that then a very difficult ERP as everyone knows when you do an ERP. It takes up a lot of mine space for your entire organization now you've got a lot of bright people, a really talented team theyre going to focus their energies on this back in <unk>.

Okay.

Alright, thank you.

Paul.

Thank you. The next question is coming from Bob.

Thank you. The next question is coming from Bob <unk>.

<unk> of Guggenheim. Please go ahead.

Fly chain that Joe was now talked about a couple of times and we're going to put a lot of effort and energy into that one of the things Thats great about here is that we already do it really well and we're going to enhance that going forward. So we see opportunity there as Joe has mentioned and we've got a lot of people that are going to be focused on that we freed up some of their time.

One of the jump back and just in follow up on the SG&A and the spend but the demand creation.

You're talking about just the brand doing as much as it's ever done for this current quarter.

Cowboys and leaning Wilson.

Can you just talk about sort of the level of sort of where you are today and as you think about that dollar spend a percentage spend.

Thank you.

Yes.

Thank you. The next question is coming from Paul Cooney of Barclays. Please go ahead.

How that might proceed into into next year and beyond.

How that might proceed into into next year and beyond thanks.

Hey, good morning, Thanks for taking my question and Joe Good to hear from you again.

Yes, Thanks, Bob I'll start on the numbers and Scott may want to jump in here. So so for the quarter. As an example, we increased our demand creation spend at a double digit rate in the quarter right and you have seen.

The impact that that's had and some of the things we're doing.

Yes, Paul if youre looking at the reported numbers you've got the duty charge embedded in there. So there's some noise in there related to that.

We're really excited about that's something we'll continue to do over time, So I would expect demand creation as a percent to total to continue to increase and we'll look to grow that investment.

We're really excited about that's something we will continue to do over time, So I would expect demand creation as a percent to total to continue to increase and we'll look to grow that investment at a rate slightly above our overall revenue growth.

Is that primarily falling on Lee.

Okay.

At a rate slightly above our overall revenue growth and Bob I'm going to jump in here, because I really want to.

No it would be it would be both brands.

And Bob I'm going to jump in here, because I really want to.

Okay.

Because I would be remiss, if I didn't give a big shout out to Holly enbridge it globally.

Because I would be remiss, if I didn't give a big shout out to Holly enbridge it globally from.

Second I guess as.

As we look into next year, and we think about SG&A, how should we think about SG&A growth relative to the low single digit this year, especially given the investments that you're making into the business. Thanks.

From Wrangler and Lee the two folks that leave our demand creation platforms across the globe for our brands in the in my point of view is that you can spend any amount of money you want but if you don't spend it intelligently it really doesn't matter and we used to spend a lot of money and not get a lot of return from that investment and like anything in life, you want to increase that investment return.

From Wrangler and Lee the two folks that lead our demand creation platforms across the globe for our brands in the in my point of view is that you can spend any amount of money you want but if you don't spend it intelligently it really doesn't matter and we used to spend a lot of money and not get a lot of return from that investment and like anything in life, you want to increase that investment return.

Yes, I think we'll hold off on any.

In our teams and those leaders have done an outstanding job and I won't go through all the things that we talked about like the Lady Wilson, the Cowboys and Alta collapsing everything again, but it's a real tribute to how the teams are thinking about our brands. How we're culturally right in the center of everything that's going on around the globe and everyday <unk>.

In our teams and those leaders have done an outstanding job and I won't go through all the things that we talked about like the Lady Wilson, the Cowboys and altogether collapsing everything again, but it's a real tribute to how the teams are thinking about our brands. How we're culturally right in the center of everything Thats going on around the globe and everyday I must do.

And look to leverage those pretty aggressively we do continue to have opportunities to drive further efficiency in the business I talked about that a little bit.

Our prepared remarks, and we will talk about where and how thats going to come to life in the context of our plan for next year.

<unk> when I hear about the things that we're working on and assured. This one other time, we used to make outbound calls for people to partner with US. We've got a lot of calls that come in now everybody wants to partner with us. So it's a really fund position to be in and we're really driving forward and I think that we're doing some things that I think people would think about us from the standpoint of our size as a company and our spend I think people.

<unk> when I hear about the things that we're working on and I assured. This one other time, we used to make outbound calls for people to partner with US we get a lot of calls that come in now everybody wants to partner with us. So it's a really fund position to be in and we're really driving forward and I think that we're doing some things that I think people would think about us from the standpoint of our size as a company and our spend I think.

Alright, thank you.

Paul.

Thank you. The next question is coming from Bob <unk> of Guggenheim. Please go ahead.

One of the jump back and just in follow up on the SG&A and the spend but the demand creation.

We would think that we are much larger than we are and spend a lot more than we do because we're having such an impact on the things that we're doing culturally and you can see the brands are really really.

We think that were much larger than we are and spend a lot more than we do because we're having such an impact on the things that we're doing culturally and you can see the brands are really really benefiting from it greatly so I just wanted to make sure that.

You're talking about just the brand doing as much as it's ever done for this current quarter.

Benefiting from it greatly so I just wanted to make sure that.

Boys and leaning Wilson.

That was stated so thanks Bob.

Can you just talk about sort of the level of sort of where you are today and as you think about that dollar spend a percentage spend.

Thanks Scott.

Thank you. The next question is a follow up coming from Mauricio Serna of UBS. Please go ahead.

How that might proceed into into next year and beyond.

Great. Thanks for taking the follow up just wanted to follow up on two things first and maybe you could talk a little bit more about the momentum you're seeing there on the one comp on dot com business, how much factories is that representative of yourselves and a point and then another follow up on inventory do you have any.

Great. Thanks for taking the follow up just wanted to follow up on two things first on DTC, maybe if you could talk a little bit more about the momentum you're seeing there on the one comp on dot com business, how much factories is that representative of yourselves and a point and then another follow up on inventory do you have any.

Yep Yep, Thanks, Bob I'll start on the numbers and Scott may want to jump in here. So so for the quarter. As an example, we increased our demand creation spend at a double digit rate in the quarter right and you have seen.

The impact that that's had and some of the things we're doing.

Which we're really excited about that's something we'll continue to do over time, So I would expect demand creation as a percent to total to continue to increase and we'll look to grow that investment.

Two the PFA chemical.

Wondering if that agreement any.

Just wondering of that ingredient any risk on the inventory age at some retailers with them.

Risk on the inventory age at some retailers with them.

Retailers with a national footprint with likely kind of.

All right.

With a national footprint with likely kind of reduce that exposure starting this spring 'twenty for other brands have commented recently, just wondering how that could affect your approach to discount until.

At a rate slightly above our overall revenue growth and Bob I'm going to jump in here, because I really want to.

Reduced that exposure starting this spring 'twenty for other brands have commented recently.

Because I would be remiss, if I didn't give a big shout out to Holly enbridge it globally.

I'm, just wondering how that could affect your approach to discount until thank.

Wrangler and Lee the two folks that lead our demand creation platforms across the globe for our brands in the in my point of view is that you can spend any amount of money you want but if you don't spend it intelligently it really doesn't matter and we used to spend a lot of money and not get a lot of return from that investment and like anything in life, you want to increase that investment return.

Thank you.

Okay.

Yes, So let me start with the Dot Com and yes, we're really pleased with our dot com business right now I think the thing that I'm. Most pleased with from the standpoint of certainly the growth, but we put a lot of investment behind our dot com and we're actually seeing the benefit of that now we built out a team we've done some really good advertising and marketing within there are capability.

In our teams and those leaders have done an outstanding job and I won't go through all the things that we talked about like the.

And now you are marrying our new ERP system that we've put in globally, and you're matching that up and marrying that up to our dot com business and the teams are working really exceptionally well together and we see a pretty bright future. So I guess I want to make sure everyone knows that we're still focused on that digital aspect, it's super important to us and still front and center of course going forward.

Lady Wilson, the Cowboys and all.

Co lapsing everything again, but it's a real tribute to how the teams are thinking about our brands. How we are culturally right in the center of everything that's going on around the globe and everyday Im astounded when I hear about the things that we're working on and assured. This one other time, we used to make outbound calls for people to partner with US. We've got a lot of calls that come in now everybody wants to par.

I'd really like with Chris and team are doing there. So so really pleased and on the other one let us get back to you.

Really like with Chris and team are doing there. So so really pleased and on the other one let us get back to you.

And we're looking at we'll make sure that we have the exactly correct information. So it will get back to you in Brazil.

With us so it's a really fund position to be in and we're really driving forward and I think that we're doing some things that I think people would think about us from the standpoint of our size as a company and our spend I think people would think that were much larger than we are and spend a lot more than we do because we're having such an impact on the things that we're doing culturally and you can see the brands are really really.

Thank you. Thanks, you bet. Thank you.

Thank you.

Thank you. The next question is coming from will Gartner of Wells Fargo. Please go ahead with your follow up.

Thank you. The next question is coming from little Gartner of Wells Fargo. Please go ahead with your follow up.

Hey, guys. Thanks for thanks for letting me come back in here just a question on the U S. Wholesale you have a big lapping Big number next next quarter, just how you're thinking about that.

Hey, guys. Thanks for thanks for letting me come back in here just a question on the U S. Wholesale you have a big Youre lapping a big number next next quarter, just how you're thinking about that.

Benefiting from it greatly so I just wanted to make sure that.

That was stated so thanks Bob.

Thanks Scott.

As far as growth.

Thank you. The next question is a follow up coming from Mauricio Serna of UBS. Please go ahead.

In the next quarter.

In the next quarter as we lap the sort of big Spike.

Like last year.

Last year.

Great. Thanks for taking the follow up.

Yes, I think we will the most important thing is the freshness of your product, making sure that you're enhancing your core product at all times, which we've done.

Wanted to follow up on two things first on DTC, maybe you could talk a little bit more about the momentum you're seeing there on the one comp on dot com business, how much factories is that representative of yourself at a point and then another follow up on inventory do you have any.

Making sure you've heard us talk a lot about our category extension. So we've done a really nice job in our T shirt business done a really nice job in our for instance, our atg business, our wrangler for Wrangler business. So all of those ancillary lines and also categories are helping us grow that business, we're gaining real estate because of our strong Pos we're gaining share because of.

Sure you've heard us talk a lot about our category extension. So we've done a really nice job in our T shirt business done a really nice job in our for instance, our atg business, our wrangler for angler business. So all of those ancillary lines and also categories are helping us grow that business, we're gaining real estate because of our strong Pos we're gaining share because of our.

Here too the PFA chemical.

Just wondering if that agreement any risk on the inventory age as you know.

Some retailers with them.

Right.

Our strong Pos and then you enhance that with all the demand creation that I talked about we feel really confident in the next quarter and we really like our big customers. They're terrific partners, we've been with them for a long time, we work really well together the winning in the marketplace and I think that's a pretty powerful combination and I will say this once again.

Retailers with a national footprint with likely kind of reduce.

Strong Pos and then you enhance that with all the demand creation that I talked about we feel really confident in the next quarter and we really like our big customers. They're terrific partners, we've been with them for a long time, we work really well together the winning in the marketplace and I think that's a pretty powerful combination and I will say this once again.

We reduced that exposure starting this spring 'twenty for other brands have commented recently.

I'm, just wondering how that could affect your approach to discount until thank.

Thank you.

Yes, So let me start with the dotcom and yes, we're really pleased with our dot com business right now I think the thing that I'm. Most pleased with from the standpoint of certainly the growth, but we put a lot of investment behind our dot com and we're actually seeing the benefit of that now we built out a team we've done some really good advertising and marketing within there are capability.

Our inventories in a really good spot so from an inventory standpoint, with our customers. We've got a plus inventory heading over there and that's what we're focused on going forward.

I like I like I, like what I'm seeing quite a bit.

And now you're marrying our new ERP system that we've put in globally, and you're matching that up and marrying that up to our dot com business and the teams are working really exceptionally well together and we see a pretty bright future. So I guess I want to make sure everyone knows that we're still focused on that digital aspect, it's super important to us and still front and center of course going forward.

Thank you at this time I'd like to turn it back over to Scott for closing comments.

Well. Thank you everyone really appreciate all the thoughtful questions today and look forward to spending time with you again next quarter wanted to wish all of you a happy healthy and safe holiday season.

And thanks for your interest and care about our company. We are working really hard to make sure that we're doing all the right things and we've got a terrific team here and I'm glad you have a lot of confidence in us and I know I have a lot of confidence in our team going forward and we'll look forward to sharing more with you in the future. So thanks, everyone.

Thanks for your interest and care about our company. We are working really hard to make sure that we're doing all the right things and we've got a terrific team here and I'm glad you have a lot of confidence in us and I know I have a lot of confidence in our team going forward and we'll look forward to sharing more with you in the future. So thanks, everyone.

I'd really like with Chris and team are doing there. So so really pleased and on the other one let us get back to you.

And we're looking at we'll make sure that we have the exactly correct information. So it will get back to you in Brazil.

Thank you. Thanks, you bet. Thank you.

Yeah.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines will back off the webcast at this time and enjoy the rest of your day.

Ladies and gentlemen, thank you for your participation. This concludes today's event.

Thank you. The next question is coming from little Gartner of Wells Fargo. Please go ahead with your follow up.

May disconnect your lines will back off the webcast at this time and enjoy the rest of your day.

Hey, guys. Thanks for thanks for letting me come back in here just a question on the U S. Wholesale you have a big lapping a big number next next quarter, just how you're thinking about that.

As far as growth.

In the next quarter as you are lapping the sort of big Spike.

Mike.

Last year.

Yes, I think we will the most important thing is the freshness of your product, making sure that you're enhancing your core product at all times, which we've done.

Making sure you've heard us talk a lot about our category extension. So we've done a really nice job in our T shirt business done a really nice job in our for instance, our atg business, our wrangler for angler business. So all of those ancillary lines and also categories are helping us grow that business, we're gaining real estate because of our strong Pos we're gaining share because of.

Our strong Pos and then you enhance that with all the demand creation that I talked about we feel really confident in the next quarter and we really like our big customers. They are terrific partners, we've been with them for a long time, we work really well together the winning in the marketplace and I think that's a pretty powerful combination and I will say this once again.

Our inventories in a really good spot so from an inventory standpoint, with our customers. We've got a plus inventory heading over there and that's what we're focused on going forward.

I like I like I, like what I'm seeing quite a bit.

Thank you at this time I'd like to turn it back over to Scott for closing comments.

Ladies and gentlemen, thank you for your participation. This concludes today's event.

You may disconnect your lines will back off the webcast at this time and enjoy the rest of your day.

Okay.

Yes.

Yeah.

Yes.

[music].

Yes.

[music].

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