Good morning, everybody. Thanks for joining us for day two for our B of A Consumer Conference. We're very delighted to have the full Carter's team with us today. With us, we have Mike Casey, Chairman and CEO; Kendra Krugman, Senior EVP, Chief Creative Officer and Chief Growth Officer; and finally, Richard Westenberger, Chief Financial Officer and COO. So thank you very much for joining us today. Just want to pass it over to Mike for some opening remarks.
Chris, thanks. Good morning, everybody. Thanks for starting your day with us. I've got some brief opening remarks, then we're gonna leave plenty of time for your questions. As you may know, Carter's is the largest branded marketer of young children's apparel in North America. We own two of the best-known brand names in kids' apparel: Carter's and OshKosh B'gosh. Both brands have served the needs of multiple generations of consumers for more than 100 years. We own the largest share of a $32 billion market. We have apparel for newborns, which is really the strength of the Carter's brand, up to about a 10-year-old child. Number one market share in the United States, number one market share in Canada, and in Mexico.
We sell essential core products, the must-have products: bodysuits, washcloths, towels, bibs, blankets, blanket sleepers, pajamas, playwear, T-shirts, shorts—all the things that families buy with a lot of frequency in those early months, years of a child's life. We are the largest specialty retailer focused on young children's apparel. We're directly managing over 1,000 stores in North America. We're also the largest supplier of young children's apparel to the largest retailers in North America, including Target, Walmart, Amazon, Kohl's, Macy's, Penney's, Costco, Sam's. Anywhere kids' apparel is sold in a meaningful way, you'll likely see a strong presence of our brands. Our brands are sold in over 90 countries and through the most successful websites for kids' apparel. Last year, together with our wholesale customers, the online purchases of our brands exceeded $1 billion. Prior to the pandemic, Carter's had 31 consecutive years of sales growth.
It's just been, it's never been a hot and cold company. It's a consistency in our performance for many years, long track record of growth, top quartile operating margins relative to our peer group, strong cash flow generation. Over the past 10 years, we've generated nearly $3 billion of free cash flow and returned $2.5 billion to our shareholders through dividends and share repurchases. Last year, our sales were over $2.9 billion, our operating income over $300 million, operating cash flow was over $500 million, and we ended the year with over $1 billion in liquidity. Then, last month, February earnings call, we shared our outlook for growth. This year, we're planning low single-digit growth in sales this year, mid-single-digit growth in earnings. We expect that our US retail business, which is the largest part of our business, will return to growth and comparable sales.
That's our focus this year. It's been a little choppy in over the past couple of years with the consumer rocked by historic inflation. We expect to open about 40 stores this year, close about 30 upon lease expiration. Rarely do we close a store early. Usually, it's upon lease expiration. Substantially, all of our stores are cash flow positive. But over a 10-year period, the mix of the co-tenancy changes, traffic patterns change, the condition of the center changes. So typically, upon a lease expiration, we decide whether or not we want to sign up for another five or 10 years. And so we'll open 40 stores this year. We'll close about 30. We're opening stores in high traffic centers, closing stores in declining traffic centers. We believe our stores provide the very best presentation of our brands. We're fortunate.
If you went, we're going to Kohl's, Macy's, Penney's, Target, Walmart. If you were to shop on Amazon, you'd see a strong presence of our brand. But it's a sliver of what we do for a living, the very best presentation, the broadest scope of our product offering you'll see in our stores. Our stores drive e-commerce sales. And our e-commerce business has been one of our highest margin businesses for many years. When we open up a store, we see e-commerce in that market grow. When we close a store, we see e-commerce in that market drop. And our stores provide a very good return on investment. We're forecasting growth in our US wholesale sales this year, driven by our exclusive brands. We have exclusive brands that we developed for Target, Walmart, and Amazon. We'll have growth with some of our other wholesale customers.
We're planning lower sales to our off-price retail customers this year: TJ Maxx, Ross Stores, Marshalls, simply because we just don't have a lot of excess inventory. We've made good progress over the last couple of years, working down excess inventory. When consumer demand slowed with inflation, inventories backed up. But we cut the inventories by 30% by last year. We're much cleaner going into this year with our inventory position, see less need to sell inventory to the off-price retailers. International sales, which is our third segment. We've got the US retail segment, the US wholesale segment, our international business. International sales are expected to be comparable to last year. We're expecting good contribution from Canada, Mexico, and Brazil, which represent about 85% of our international sales.
We're forecasting lower sales in the Middle East, which is one of our larger markets, because of what's going on in the Middle East, and lower sales in Europe. To return to growth, we're focused on providing the very best value and experience in young children's apparel. Our supply chain team did a great job negotiating a lower product cost this year. We're gonna invest a portion of the product cost reduction in product benefits and sharper price points on some of the key items. Those investments are expected to drive growth in unit volume this year. We're gonna try to be less reliant on pricing to drive growth, which we've done successfully during the last couple of years with inflation. Market conditions seem to be improving. Birth trends, thankfully, are stable. Consumer sentiment is improving. We saw a correlation between the improved consumer sentiment.
Over the holidays at the tail end of last year, we had a good holiday season, strong finish to 2023. Inflation, thankfully, is moderating. Real wages are rising. We're seeing traffic trends improving. We're so expecting gradual recovery in traffic this year. The arrow, I would say, is pointing up, not way up. We're starting to see some stability in consumer behavior and some gradual improvement. So in summary, Carter's is the market leader, continues to be the market leader in young children's apparel. We have unparalleled relationships with the largest retailers of young children's apparel in North America. These relationships go back decades. Our brands are sold through over 20,000 points of distribution worldwide. We have multiple brands, multiple distribution channels, multiple levers to enable growth. We believe we're well positioned to benefit from the market recovery in the years ahead. I've made some forward-looking statements.
There are risks inherent in our business. Those risks are disclosed in our SEC filing. Hopefully, that overview gets things warmed up. Gives you a helpful overview of our business, how we make a living. We'll be happy to address any questions you have.
Great. Thanks, Mike. So there's a lot to unpack here. I thought we could start with your retail business. Maybe you can walk through some of the underlying assumptions during the year to kind of foot to your guidance, and then any comments on how quarter to date is trending.
Sure. So, again, retail is about $1.5 billion of the $3 billion of annual sales we're forecasting this year. And about a third of it is in e-commerce. The balance is in stores. We do over $1 billion in sales through our stores. In retail, the focus about a year ago, we made some significant changes in the organization. If you followed the business, you saw we had some charges almost in every quarter last year. But we've made some significant changes in leadership of retail within our merchandising, design, marketing organizations. And we're starting to see the benefit of those changes in our spring 2024 sales. And so to keep in my right now, we're working on spring 2025.
So anytime you make a change, most of what you're selling at that time was developed a year prior. So we made significant changes in the organization about a year ago, early March. And we're starting to see the benefit of that in our retail business. And the benefit is in the product, the strength of the product offering. So we're seeing good sell-throughs of our spring product in our own stores and through our wholesale customers. So it's the org. I'd say the big drivers are changes in the organization, stronger leadership, seeing the strength of those, the benefit from those changes and the strength of the product offering. The other focus is fleet optimization.
What we broadly say is fleet optimization, continuing to open stores and better higher traffic centers, close stores, when the leases come up for renewal. If the arrow's pointing south, don't sign up for, any additional period of time. We've tested with success some new store models, where we're focusing on, creating a better experience for the consumer with the very best of our baby and toddler product offerings in certain stores and the best of our older product offerings in another side of the store. And we're doing some remodels. We're seeing a benefit from doing some remodels that were kind of deferred, during the, pandemic and in recent years. So fleet optimization broadly, better higher margin stores and closing some of the lower margin stores.
And then on marketing, I would say, some of the things that we've done to improve marketing effectiveness, brought on a new media agency. They guide us on what's the highest and best use of the marketing investments, particularly in social media. Richard, every quarter, shares a snapshot. You know, how does Carter's connect with consumers on social media? No one has a higher following on social media in kids' apparel other than Carter's, number one in TikTok, number one in Facebook, Instagram. So this is the way good companies are marketing directly to the consumer through social media, where, you know, parents are talking to other parents, grandparents are talking to other. But what brands are you buying? What brands do you like? What brands provide good value? So we've had good connection with consumers through social media, brought on a new creative agency.
We're launching a new loyalty program to that we believe will improve the frequency of visits to the store. And we've invested in marketing personalization capabilities. So whoever you're shopping for, if you're shopping for a young girl, you know, and we can tell what age that child is, we'll send you some more marketing messages based on the age and the gender of the child to connect more effectively with some of the emails and text messages that you receive. So there's a number of different things. But broadly, everything starts with talent. And that talent's driving better product performance. And then we're supporting the retail business with good initiatives around the stores and e-commerce and our marketing capabilities.
Great. I just want to double-click into your store growth plans. I think a couple of weeks ago, when you reported 4Q results, you talked about 200 net new doors over the next five years. So I just wanted to get your thoughts on the decision to ramp up your store openings and then if these new merchandise merchandising changes you discussed are starting to work and drive traffic.
Yep. So, I would say that during the pandemic, we were more in a store closure mode, right? And in years past, if a lease came up for renewal and we were given the keys back to the landlord, they'd slide something across the table to say, "But for this, would you stay?" And we said, "Well, for that, yeah, sure. No, we'll stay for and we'll go year to year, month to month," type of thing. But during the pandemic, we were more inclined to say, "No, we're out. We're out." We just so we closed over 140 stores, which were producing about $140 million of revenue but had low single-digit operating margins. So our mindset during the pandemic, let's focus on fewer better things, fewer better product choices, fewer better higher margin stores, fewer better promotions.
So we kind of had this kind of mindset, fewer better things, leaner organization. So, you know, we were a smaller company during the pandemic. So we had to get smaller in terms of an organization. So that served us well. But like everything that you go through that's challenging, some good things come out of that. Our average price points to the consumer before the pandemic were $8 and change. So I always thought it was pitifully low. And then because of some good initiatives around inventory management and walking back some brand erosive, margin erosive promotions, we saw the average price directly to the consumer go from $8 and change to $9, $10. And this morning, it was $11 and change.
So because of the progress that we've made, improving our marketing effectiveness, improving our inventory management capabilities and disciplines, we were running leaner. We're on inventory, seeing better sell-throughs of the product, better price realization, fewer products on the clearance rack at the end of the season. So because of the progress with price realization, there are more attractive store opening opportunities available to us. Again, we've always seen high returns on investment in our stores. We used to refer to our stores as ATM machines because the investments were some portion of $500,000 or $600,000, inclusive of CapEx and inventory. Generally, you'd see a payback on that return within 2-2.5 years. So, again, we're gonna be thoughtful. If there's good real estate available, which there continues to be, we'll go in.
What we're excited about is some of the initiatives around stores. We used to open up Carter's stores and OshKosh stores. Then we evolved to have the Carter's and OshKosh stores sit side by side. And then we evolved to have both brands sitting in one box. And now we're kind of evolving back to something where let's create a unique experience for that family shopping for a baby or a toddler, what we're calling the best of both our Best of Baby stores. And we'll create a different experience for the consumer shopping for about a 4- to 10-year-old child. So we got some good things that we've done that came out of the pandemic.
Anytime you go through some of these challenges, this forces you to say, "What changes would enable us to weather this storm?" And, I think we're. I like our company better today than I did in 2019.
Great. Next, I thought, we could talk about pricing. I think you've guided pricing to be down around 1% for the full year in 2024. Can you talk about the changes you're making with the Everyday Value marketing campaign and whether you feel comfortable that the pricing cuts you outlined will be enough to remain competitive in the children's apparel market?
Sure. So we'll tag team this. But again, the whole idea is when you're coming in, do you have price clarity? So, and so our pricing strategy overall is to be a buck or two above private label. Private label is our competition, particularly in baby. And baby represents over 50% of what we do for a living. Baby and toddler, where we have the leading market share, both in baby and toddler, represents over 80% of our sales. Again, this is when the mom, dad, the parents, the grandparents are deciding what those products, by and large, are gonna be. So that's the why I think we've had a fairly resilient business model over many, many years. It's, we focus on wholesome dressing, kind of the must-have products that you have to have.
But within the kind of opening price point, we just decided rather than when you come in and one day, it's, you know, it's the straight, you know, it's the full price. Another day, it's 20% off. Another day, it's 40% off. We said, "What are those lightning rod items, those basket starters that just put the sharp price point on it, which still would be a buck or two above private label?" But there's clarity to it when they come into the store. So that's the whole strategy. And some of it is as much, it's almost as much marketing clarity, being as helpful as we can to the consumer with some of those very value-oriented price points. And so that's the strategy. And you'll see it. I was in the stores Monday morning. They've done a beautiful job.
As soon as you come into the store, just the way it's branded, these Everyday Value items are the things that consumers buy with some frequency. You wanna comment on what we're seeing, kind of the barbell approach, the kind of the consumer gravitating to the opening price point and also some of the more higher ticket items?
Sure. Yeah. We've seen a lot of success recently in our very opening price items. And those are the ones that we just moved some of them to an Everyday Value model so that we have more consistency and gain credibility with our customer. But we've also seen a really strong business in our more collection, higher-end, higher-priced items, including Little Planet and our better collections from OshKosh and Carter's. So the consumer is gravitating to both of those things. The middle's getting a little bit more squeezed. We are distorting our efforts towards the better in that opening price as well.
Yeah. Some of our best-selling things are the highest ticket. So again, we have a very budget-conscious consumer. But we've also seen this past year a less price-sensitive consumer looking for something that doesn't, you know, doesn't have a big fire engine across the front of it or a big bunny. They just, we have a product offering, Little Planet and Purely Soft, which is more elevated, you know, nicer details, better texture, better fabrications. And it's a significantly higher ticket. But those products are some of our best-selling products. So it's an interesting consumer behavior.
Okay. Next, I thought we could shift to your wholesale business. It'll be great if you can unpack the outlook for the full year, your visibility on order books, and how we should think about growth, particularly from your exclusive business with Walmart, Target, and Amazon.
So the beauty of our wholesale business, about 2/3 of it is what we would describe as seasonal. So spring, fall, you know, and the winter, the holiday product. And we've got bookings through fall. We're the bookings for winter are coming through winter and/or holiday coming through now. But the indication would be that we'd, even with winter as they're coming in, they'd be consistent with what we shared with you in February in terms of the outlook for the year. But the bookings that we have in hand for the seasonal product offerings are up low single digit. So it's consistent with how we're modeling the growth in wholesale this year. So 2/3 is seasonal. One-third is replenishment. So if you were to go into Target, to Walmart, you get these big brand walls.
You go into Kohl's big fixtures of things like bodysuits, washcloths, towels, bibs, blankets, all the essentials, all the things you have to load up on, all the things you more often than not, you're buying months before the child even comes into the world, things you buy for the shower gifts. And so on that automatic replenishment component of our business, which is a third of wholesale, when the consumer goes and checks out at the register, the register sends a signal to us to say, "Get that product back in stock." Because the worst thing you can do of all the things on the essentials is have empty pegs on those walls. You wanna make sure that you're never out of white bodysuits. You're never out of the washcloths, towels, and bibs, the things that the consumer's going through, frequently.
That business was particularly strong in the fourth quarter. And it was, and so that's where the consumer is deciding what they need. So the business, do we have a good outlook? And we have bookings in hand, and so we're expecting good growth in wholesale this year.
Great.
And you had mentioned trends. Again, what we shared on the call is the trends were improving through January and February. And I won't in April update you on how we're doing in March. March is a big month. In March, we do almost what we do in January and February combined, just the seasonality of the business as the weather turns. That's the stimulus. That's the beautiful natural stimulus in our business. When weather turns from cold to warm, the consumer starts to say, "Hey, I need to change the outfits." And when later this year, when it goes from warm to cold, that's the, you never know when it's gonna come, right? But, you know, in my experience over the past 30 years, it's the natural stimulus that drives the consumer behavior.
We won't see the volume that we expect to see in March again until September. That's the significance of March. In April, we'll give you a good update.
Sounds good. Just as a quick follow-up on wholesale, can you discuss your confidence in growing units in some of your top retailers this year, given the competition with private label? And maybe just discuss some of the initiative to drive this unit growth in wholesale.
Well, so private label is our competition. Every major retailer has a very strong private label brand. And our brands sit side by side with those private label brands. And the big the big big move on private label by the major retailers was after the Great Recession. So they said, "Hey, we have to have these sharp opening price point product offerings." So they and that was the big concern of ours about our business back in 2008, 2009. What would that do to Carter's? We grew. They grew and we grew. The major retailers, particularly during the Great Recession, edited out all the kind of the fringe brands and said, "Hey, we gotta we have to focus on our private label because the margins on private label are very good.
But we also have to make sure we have the best national brands to drive traffic into the stores." And Carter's is the best-selling national brand in young children's apparel. So we've coexisted. You know, our share is much larger than the largest private label brand. We sit side by side with the largest private label brand. It's one of our best and strongest relationships. So it's always a challenge. We have to earn our stripes every day. We have to lead the market. Carter's is the leader. We have to lead the market. We like to say our private label and other competitors are always inspired by some of the things that we do because we start to see some of what we did, show up in certain retailers.
But it's a good relationship. It's just they understand you have to have the national brands. National brands provide a basis of comparison for the private label brands. It's meant to be complementary, not competing.
Thanks. Richard, maybe we can pass it to you to talk a couple margin questions. Maybe we start with gross margin. Be great if you can walk through the main drivers in your 2024 guidance, particularly around freight and input costs.
Sure. Sure. I think the outlook for gross margin is good. But we're planning gross margin expansion in 2024. And that's on top of a 2023 that was a very good year for expanding our gross margin. I'd say kind of three principal drivers. One is, Mike said, product costs. Our supply chain team has done an excellent job taking advantage of the capacity that exists in Asia. We've just come off a series of top-to-top vendor meetings. Our partners in Asia are anxious to do more business with us. And so that has translated into lower product costs. An element of that is transportation. So the ocean freight rates, as you all know, skyrocketed a couple of years ago, really to record levels. Those have come back down. We saw a really strong second-half benefit last year from having renegotiated new ocean freight rates.
We'll get a first-half benefit of that. And then our assumption is that those will be more or less stable, going forward from that point. And then finally, mix. So we expect to grow our gross margin-rich retail business this year. That is the gross margin-rich part of the business relative to wholesale. And we're also planning for less activity in the off-price channel, which tends not to be really profitable sales for us. So we exited the year in such a clean inventory position that we're planning about half of the volume that we typically do through the off-price channel. All of those should benefit gross margin.
Great. Then maybe you could just, tying into this, talk about what Carter's is seeing, given the disruption in the Red Sea, and if you can remind the audience, kind of your exposure to the East Coast ports and maybe how you're shifting some of that to the West Coast.
Sure. Sure. So over the last number of years, we had shifted what was the majority of our import activity on the West Coast of the U.S. to balance it more. Actually, last year, about 70% of our import activity was in the Port of Savannah. So our distribution centers are in Georgia. For a lot of different reasons, it made sense to move some of that activity to balance out. Every now and then, there's labor disruptions on the West Coast. The West Coast ports, in particular, became really gummed up during the pandemic and just after. So we had a much more balanced approach. Again, I think our supply chain team has done a nice job getting ahead of the situation here. So we've had some disruption as it relates to product going through the Red Sea.
Most of our major carriers have now completely avoided that area. They're sending the vessels around the southern tip of Africa. That's what we're doing with our goods as well. There's probably about 10% of our first-half product that's running 7-10 days late, so well within our ability to kind of manage in our overall timelines. It is elevating the lead times a bit. There's probably some additional charges that we're gonna see, again, within our guidance, within our plans for the year.
Okay. Just on SG&A, a similar question as gross margin. Can you walk us through the moving pieces in your SG&A guidance this year? In particular, if the retail business stalls a bit, do you think you have enough levers to pull on SG&A to kind of foot to your guidance?
Sure. So SG&A continues to be an area of focus for us. I think we've done a good job over the years. As Mike says, we're not big spenders at Carter's. And during the pandemic, I think you look for, as Mike said, you look for the good opportunities. You look for the opportunities to make your business more efficient. And we've done a healthy amount of that in our business. So several different waves of reduction in force. We're probably about 15% lower in salaried headcount than we were pre-pandemic. So the entire organization is leaner, which was appropriate given what happened with the top line. We're planning for mid-single digit growth in SG&A for the year. Part of that is just the variable, volume-related expenses coming back into the base. And I think that's a good trait for us.
We'd love to have the top line growth. There are some expenses that will come back in terms of e-commerce fulfillment. We are opening new stores. So that will be additive to the cost base. Inflation continues to affect certain parts of our cost structure. So we're continuing to make merit increases for our staff. Insurance costs are higher than they were before. A lot of that is being offset by our ongoing productivity agenda. So it's a bit of a mix. But, I think the outlook is good for SG&A. And we do have a track record when the top line demand is not what we had forecasted. The organization does a good job responding to that. So where we can pull back, we do have a very high fixed cost structure business. We have distribution centers. We have stores.
Those costs don't go away. You pay those costs in good times and bad times. But the organization historically has responded very well to what we can control, keeping a lid on hiring, moving out projects, technology spend, things like that in response to the demand we're seeing in the business.
That's very clear. Mike, maybe back to you. Be great to talk a little bit about your international business. I know Canada, Mexico, Brazil make up about 85% of that business. So maybe you can walk through each market quickly or talk about where you see opportunities into this year.
So again, Canada, Mexico, those were two licensees years ago, that, you know, we were impressed with the way they were managing their businesses. So we bought both of them. It's like the old Victor Kiam. We liked their businesses so much. We bought them, right? And so now we have the number one market share in Canada, number one market share in Mexico. And we've got this wonderful wholesale relationship with one of the largest department stores down in Brazil called Riachuelo. And I'll tell you a little bit about them. In Canada, it's a beautiful multi-channel model. And it's, you know, largely retail, including e-commerce, wholesale business. Largest customer they have up there is Walmart. And it's a good business. And they're, you know, they've been opening stores.
They've seen good results with the stores, good results with the e-commerce. I'd say wholesale in recent years has been a bit mixed as some of the wholesale customers were running lean on inventory, being very cautious on inventory commitments. Canada is the largest component of the international business. We're planning that business comparable year over year, that we'll see growth in retail. We'll see a dip in wholesale near term, hopefully. But it's, you know, we've invested in a lot of the capabilities that we've built in the United States, omnichannel capabilities. So you can shop online, pick it up in the store, fulfill the orders from the stores. If you're in the store and you say, "Jeez, I love that dress, but you know my daughter's size," they'd say, "Hey, no problem. We'll ring you up here.
We'll ship the thing directly to your home through e-commerce." So we've invested all those capabilities that, you know, support the needs of the consumers. Mexico, again, multi-channel business, wholesale, retail, e-commerce. That's more of, we're expecting higher growth from Mexico. When we bought it, they had a lot of boutique-sized stores. They had a, you know, a smaller Carter's store and a separate smaller OshKosh store. What we're doing in Mexico is replicating the success we've had in the United States and Canada with these co-branded stores, 4,000-5,000 sq ft of everything you need for a newborn to about a 10-year-old child. And they're seeing success with it. So they probably have some portion of, you know, 50 or 50 plus or minus stores today. We think we actually double the retail square footage in Mexico over the next 5 years.
They got a good wholesale customer base. So when we go to some of these better department stores in Mexico, they do a beautiful job presenting both, you know, Carter's, OshKosh. You count Skip Hop all three of our brands. And then what's interesting, not unlike what we saw in Canada and Mexico, we had a, you know, a relationship down in Brazil. It was a wholesale relationship, not licensing. But it, you know, they had our, you know, Carter's product in their store. It did so well. They said, "Hey, would you mind if we opened Carter's stores in Brazil?" And so they were inspired by the stores in the United States. And they said, "Hey, we'd love to have we think this model." And now they have 60.
Our guess is that by the end of this year, they'll have some portion of 75. But it shows you that now it's exactly the relationship in Canada. Canada was a licensee. They had their own stores called Bonnie Togs. They had their own private label brands. They were selling the OshKosh brand for years up in Canada. And then when Carter's bought OshKosh, they said, "Hey, we could sell the Carter's brand." Our brands did so well in their stores. The same thing. They said, "Can we open up Carter-OshKosh stores?" And in Canada, we said, "Well, we don't have Carter-OshKosh stores. We have Carter's stores in OshKosh." But they said, "In Canada, smaller market, we think one box with both brands." They did such a great job with it. We actually replicated that model in the United States.
So again, Richard shows every quarter different parts of the world where stores are being open. But, you know, like in Brazil, which again is one of the top department stores, they're expanding the presence in their department stores. And they're also rolling out stores. I'm not quite sure how many other companies, other brands you follow have that, you know, kind of have had that experience. But we have we have beautiful stores. We're doing business in 90 countries. We have beautiful stores in Israel until, you know, things hit the fan. We had stores in Russia and Ukraine, again, all largely through wholesale relationships. We have stores all throughout South America, Chile, and Peru, and beautiful stores in Bahrain, right?
But that's the, and again, individually, the balance, if 85% is Canada, Mexico, and Brazil, the balance is 15% is smaller relationships with a number of good retailers throughout the world, individually small, collectively better part of a $100 million business in a high-margin business. So we've tried things. We went to Mexico. It was a money pit not Mexico, pardon me, China. We went to China. There was a lot of revenue, not a lot of profitability, and no path to profitability. We went to Japan, same thing. A lot, you know, potential revenue opportunity, but no real profit opportunity. So we're highly selective, right? So we've always had this point of view. We're gonna expand globally and profitably, right? We you asked last night about Europe. We got good advice years ago. Don't go to Europe. Europe's not Europe. Europe is Germany.
It's Italy. It's France. They all have different consumer expectations, regulatory requirements. You know, again, you could go there. There's probably revenue. But we don't think it would be a high-margin business. If you look at Carter's track record over the past 30 years, we've always prided ourselves on a higher-margin business. It's historically, it's been. I'm sure there's been exceptions. But historically, it's always been a double-digit operating margin business. Last year, in a very difficult retail environment, we had double-digit operating margins in each of our three business segments. So we always try to strike that right balance between top line growth and profitability. And we got a good, healthy international business. I like that it's 15%. Often get challenged, "Hey, what would it take to get to 30?" Well, if it could be 30, it would be 30.
But I'm not quite sure it'd be as profitable at 30. So we're happy with it at 15.
Makes sense. Thanks. Next, it'd be great if you could talk about the size of your e-commerce business today and then some of the growth initiatives you're putting in place for the business to really to really jump-start that.
Sure.
Sure.
Yeah. So our e-commerce business represents about one-third of our retail business in total. It's been less of an important part in recent years as the consumer has gravitated back to stores. But we are back on a build with e-commerce. We are growing our capabilities. Our omnichannel consumer is really important to us. We have found that a very large portion of our transactions now are omnichannel, people who engage with both our e-commerce site as well as our stores in multiple ways. That consumer has a much higher lifetime value to us. They spend more. They are more highly retained. And, they shop more of our brands more frequently. So, we are growing e-commerce not only for our e-commerce business as a standalone but as in our total retail business totally.
We have invested in a lot of capabilities, including recently headless technology, which we rolled out last year, which creates a new, more nimble platform for us to navigate our e-commerce business on. Our entire site look and feel has changed and evolved over the last few months. So we are really looking forward to our opportunities with e-commerce, as we look ahead.
Great. I just wanted to pause here to see if we have any questions in the room.
Yes, sir. We got a question in the back.
Hey. Thanks for spending time with us today. So a couple of questions. First, Richard, I think last year, free cash flow conversion was roughly 90%. Returned most of that with dividends and share repurchases. So just what's the consistency of free cash? Is that kind of a normal year in terms of free cash flow? I know inventory's improved a little bit. But just, you know, as we kind of think about the cash return to shareholders as part of the value model for investors, is that a pretty representative year?
Well, I would say over the long arc of history, this is a very cash-rich business model. I don't think $500 million of operating cash flow was typical last year. That was really driven by the fact that a year prior, we had taken over $100 million of inventory. As the consumer demand really softened in response to inflation, we took that inventory and we held it on the balance sheet for sale in 2023. It's not a typical part of our business strategy. But cash flow, by contrast, I think was around $90 million in 2022, operating cash flow. So, that came roaring back with the sell-through of that inventory and the overall reduction in inventory that we managed through the end of last year. But it is a cash-rich business model.
And to your question on distribution of capital, we're fans of using our free cash flow for return of capital to shareholders. We like the mix of the dividend and share repurchase. So if you look back over the last number of years, I would say virtually all of our free cash flow we have distributed back to our shareholders. We're always looking for new opportunities to put that cash back to work in the business. We're fully funding all the CapEx projects that are being advanced with good business cases. So we're not shorting anything in the business that would be a good return on investment for us. We look at M&A opportunities. To date, there haven't been anything that has been compelling that meet our return objectives. But we always look at that.
But in the absence of having a use for that cash, we would like to continue to distribute it.
Thank you. And then, Kendra, just to follow up on Chris's question about e-commerce, can you talk a little bit about the efforts you've made in personalization, and, you know, I guess, targeting consumers directly? I think the diaper companies have had really good success in terms of engaging people and getting them into their brands, you know, at the beginning, I guess.
Yeah.
If you could talk a little bit about kind of where you are in that journey.
So I would say we are in the midpoint early on in the journey. I think it's ever-changing and the importance of it. We're learning a lot, in the data behind the importance of it and how we communicate with the customer. We have, I would say a lot of it is a marketing vehicle. So it's learning more about the customer, knowing exactly who we're talking to. We use our rewards program and our loyalty program to kind of facilitate a lot of that information that we have on the consumer and how they shop. But it is a marketing vehicle. So we can target a customer with the specific gender, type, or age range segment of products that they're looking for. We target them with specific brands that they're loyal to. So our Little Planet brand, OshKosh brand, Carter's brand.
While there's a lot of crossover shopping, there are consumers who respond differently to each of the brands' messaging. So we use our targeted by brand. Then we have a lot of regionalization, messaging now and promotional messaging that caters to different types of consumers. So if it's cold up in the Northeast, we can target that region or those specific consumers with emails that it's time to go buy your winter coat. If it's warm in Florida, we will target those consumers with, "Hey, it's time to go. Think about your swimsuit." Or, "Here's a 20% coupon for your next pair of shorts." Or, "Johnny is turning four years old.
Hey, it's triggered. It's a trigger for us to know it's time to reach out to that consumer and say, "You need to restock on shorts today." So we're using. I would say we use it in different veins. And then we've learned in places that we leaned into personalization where it didn't really have the impact we expected. So, we're learning as we go.
Yes, sir. Thank you. Your gross margins are 500 basis points above pre-COVID levels while many of your competitive specialty retail is still playing catch-up. That's big there. When you think about pricing, especially with private label competition, are you thinking about potentially competing more aggressively with private label from a pricing perspective since you've recouped so much margin already?
Yeah. So again, our point of view over many years, we've been working with Target and Walmart for over 20 years now. So we've got a lot of experience competing with the very best in the business. Our experience has been you want to stay within a buck or two of the private label brands. When you get further away on price from private label, the risk of trading down is higher. So we're mindful of that risk. But the consumer expects to pay a reasonable premium for the best-selling national brand. That's true in bottled water. It's true in paper towels. It's true in pajamas, right? So again, we see the beauty of our business, we have insight into what every major retailer is doing in kids' apparel. No one else has that.
So we see every day what the sell-through is, how our pricing, how effective our pricing is. We have people studying the market. So but the rule of thumb is you want to stay within a buck or two. And even with the progress that we've made on pricing, our pricing went up since 2019. But sort of private label. Why? Because everybody's product costs went up and labor costs went up and insurance costs went up. And we had, there was a concern back in, after the cotton crisis in 2011, when cotton prices surged over $2.20 a pound. And then, you know, everybody's prices went up. Product costs went up. And then when cotton prices dropped like a rock the following year, it was like, "Hey, what's gonna happen to pricing?" We held pricing.
The question, "Well, what if everybody else lowers pricing?" Well, so if everybody else lowers pricing, we'll revisit that strategy. Our number one job is to be competitive. No one lowered pricing. Because once you get to that level and that's that again, it's another good thing that's come out of the pandemic. Every good retailer got leaner on inventory. They saw the benefit of being leaner on inventory. Even before the pandemic, I can recall having a top-to-top meeting in January of 2020 before we knew we had a problem with a pandemic. One of our customers said, "You know, we think we're actually gonna buy fewer units this year. And by buying fewer units, we think we'll see better sell-throughs, better price realization, less on the clearance rack at the end of the season.
We think we can get a good comp store growth by buying fewer units. And you know what? I again see the margins our wholesale customers are earning today on our brands. They're better than they were in 2019. So what, especially in this kind of higher-cost environment, no one's gonna want to give up that margin performance, right? So I don't see today a risk that anybody's gonna take this kind of more favorable-cost environment and go more aggressive on pricing. Because whereas product costs have come down, labor costs are up, occupancy costs are up, other costs are up. So once you get that kind of margin performance, you're gonna do your best to try to hold onto it. And the biggest lever to do that, be smart on your inventory commitments.
Before the pandemic, we used to take a third of the units we sourced from Asia. And they'd wind up on the clearance rack, which breaks your heart when you think of all the work that goes in, but a third of it. And it's closer to 20% this past year. So that's what that's been the margin driver, improved price realization, leaner on inventories, less excess inventory reserves. Richard referenced. When everything slowed down in the pandemic and stores closed, we had over $100 million. We could have just dumped it into the off-price channel. But we said, "Why don't we just pack and hold it?" Which we never did before. "Let's take over $100 million of inventory and we'll bring it back in 2021 and sell through it." Kendra and her team merchandised new product around it.
But the core was everything that our wholesale customers had bought the year before. But when their doors closed, they just said, "We don't need it. So we'll bring it back next year." Fire engines never go out of style. Bunnies never go out of style, right? So it's just that's the beauty of our business. Adorable is always in fashion, right? And then when inflation hit in 2022, we said we had to do the same thing again. Because everybody hit the brakes. The consumer hit the brakes when gas prices doubled, food prices went up. They couldn't find baby formula. The consumer hit the brakes, took another $100 million, which we said we'd never do it again. It sold through at high margins in 2023. Thankfully, that baggage is behind us.
So there'll be a higher mix of fresh product, new product, new color stories, new fabrications in 2024. 2024 will probably be the strongest product offering we've had in the past four years.
Great. I think, we're out of time. But thank you so much.
Thanks for starting your day. Hopefully, it was helpful to you. I appreciate you showing up this morning. Thanks very much. Thank you. Thank you all very much.