Earnings Call: Q3 2017

Nov 7, 2017

answer session. Please note that this conference is being recorded. I will now turn the call over to Marissa Jacobs, Senior Director of Investor Relations. Ms. Jacobs, you may begin. Good morning, everyone, and thank you for joining us today for the Crocs' 3rd quarter 2017 earnings call. Earlier this morning, we announced our Q3 results and a copy of the press release can be found on our website at crocs.com. We would like to remind everyone that some of the information provided on this call is forward looking and accordingly is subject to the Safe Harbor provisions of the federal securities law. These statements include, but are not limited to, statements regarding future revenues, gross margin or SG and A expenses and our product pipeline. Crocs is not obligated to update these forward looking statements to reflect the impact of future events. We caution you that all forward looking statements are subject to a number of risks and uncertainties described in the Risk Factors section of the company's annual report on Form 10 ks. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs' annual report on Form 10 ks as well as other documents filed with the SEC for more information relating to these risk factors. Joining us on the call today are Andrew Reese, President and Chief Executive Officer and Carrie Tefner, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions. At this time, I'll turn the call over to Andrew. Thank you, Marissa, and good morning, everyone. I'll begin with some introductory comments about our Q3 financial results. Then I'll discuss the strategic initiatives we are focusing on to drive the business and update you on the results of our 3 distribution channels. Cary will then take you through our financial results for the Q3 in greater detail and our expectations for the Q4 of 2017. The Q3 was another strong quarter for us, both in terms of financial performance and the progress we have made against our strategic initiatives. Consistent with our first half of this year, we again met or exceeded each of our financial metrics in Q3. Furthermore, the perception of our brand continued to rise, with results from our latest annual brand survey showing double digit increases in brand desirability, relevance and consideration compared to the same period last year. Our Q3 revenues were $243,300,000 and we achieved a 50.8% gross margin, which represented 100 basis point improvement over Q3 of last year. Our income from operations was $2,700,000 compared to last year's loss of $1,200,000 Our diluted loss per share was $0.03 compared to last year's loss of $0.07 We ended the Q3 with $140,300,000 in inventory, dollars 29,100,000 or 17.2% less than at the end of the Q3 last year. We continue to execute against our SG and A reduction plan, and we remain on target to eliminate between $75,000,000 $85,000,000 of SG and A expenses annually and to deliver an incremental $30,000,000 to $35,000,000 in income from operations in 2019 as compared to 2016. These results continue to demonstrate that by focusing on our key strategic objectives, we are improving our financial performance and moving closer to our objective of generating double digit EBIT margins. Over the past several quarters, we have been speaking to you about our focus on product, specifically clogs, sandals, flips and slides marketing, where we are amplifying our reach and impact through our digital and social focus and distribution channels, where we're focused on growing e commerce and wholesale while rationalizing our store fleet. Let me give you a little bit more detail on each of these areas. Starting with product. Since the beginning of the year, we have been discussing our enhanced focus on clogs along with our intention to grow sandals, flips and slides. These silhouettes fully embrace Crocs DNA. They also represent categories where we can drive substantial sales and margin growth. Based on year to date results, the positive response we're seeing to us and the positive response we're seeing to our springsummer 2018 line, we know that this narrowed focus is working well for the brand. With respect to clogs, this category makes up the largest segment of our sales. During the Q3, clogs represented 52% of our sales, up from 51.5% in last year's Q3. The classic and crop band continue to be our best selling clog styles. New colors and graphics, embellishments and license images are resonating with consumers and driving growth in these styles. Sandals, including flips and slides, remain our second area of focus. Globally, sandals represented a large and growing category. It's a natural expansion for us given a high brand relevancy in the category and the fragmented competitive environment. During this year's Q3, sandals represented 18.6% of our sales, up from 13.8% last year in last year's Q3. This illustrates that significant progress has been made in a very short time. Key sandal franchises include Swiftwater for men, women and kids Isabella for women and kids and Sloan and Saundra for women. Our broad based offerings satisfy multiple wearing occasions and appeal to consumers with different style preferences. At the same time, they're comfortable, lightweight and trend wide, reflecting our key brand attributes. Looking ahead to springsummer 2018, I'm particularly excited about the introduction of LiteRide. This new collection is a fresh addition to our line, bringing newness, innovation and a premium offering to clogs and sandals. The LiteRide collection uses a proprietary new material to create an extremely lightweight, highly cushioned footbed while introducing simple, modern styling. By incorporating innovative new technology and great new styling, the LiteRide collection helps us elevate the Crocs brand. I've spoken to you previously about our intent to derisk the fall holiday season and extend the selling season for springsummer product. We did so for fall holiday 2017 by reducing the number of cold weather styles being offered and by successfully keeping our springsummer product on shelves well into Q3, demonstrating that clogs and sandals are in demand even after the summer season ends. From a brand building and marketing perspective, we're also making measurable gains. We recently completed our annual brand survey. The results were terrific. We achieved double digit gains in brand desirability, brand relevance and brand consideration, demonstrating that our new product and marketing initiatives are resonating with consumers. In terms of marketing, our Come As You Are campaign officially launched in April of this year. Since its kickoff, the campaign has encompassed 4 key components: brand ambassadors, digital and social media content, designer collaborations and grassroots social activations. Our brand ambassadors are raising the profile of Crocs and getting us in front of new audiences. Social and digital marketing are amplifying our marketing spend by reaching existing and potential consumers in a more targeted and impactful way. Our Christopher Kane and Balenciaga collaborations led to invaluable PR coverage. And grassroots social activations like Crocs with Socks and Rock Bright Crocs are generating fun and excitement. Together, these four components of our campaign are brand engagement and driving sales. Let me turn now to our 3 distribution channels. Our wholesale business continues to reflect the impact of business model changes, particularly in Asia. At the same time, ongoing accounts continue to be pleased with the performance they are experiencing, highlighted by strong sell throughs at good margins. This is leading to SKU and door expansion. In addition, clogs and sandals are being sold longer into the fall season with our Always Summer initiative. Retail performed in line with expectations. We made good progress rationalizing our store fleet, closing or transferring 29 stores net of openings during the quarter. Furthermore, we operated 80 fewer stores in this year's Q3 than in the same period last year. In e commerce, we delivered a double digit growth in the quarter across all three geographic regions. As you may recall, in the spring, we organized this channel under new direction of a global leader. And since that time, the adoption of best practices across the globe is translating into revenue gains. Particular progress is being made in terms of improved stock levels, customer service and more effective price and promotional strategy. In closing, I want to thank our associates for their ongoing enthusiasm, support of the brand and hard work throughout the year. We've made meaningful progress strategically, operationally and financially, and I'm confident we will continue to do so in the future. At this time, let me turn the call over to Carrie. She will review our Q3 financial results and present our latest guidance. Thank you, Andrew. As Andrew just mentioned, we are pleased with the strength of our 3rd quarter results as we continue to execute against our key priorities and drive improved financial performance. 3rd quarter revenues were $243,300,000 down $2,600,000 or 1.1 percent from a year ago. These revenues exceeded the top end of our guidance, which was $240,000,000 Foreign currency translation increased revenues by $1,300,000 compared to Q3 last year. The modest decline in revenues from last year's Q3 primarily relates to store closures and business model changes, specifically last year's Q4 sale of our Taiwan business and this year's Q2 sale of our Middle East business. Absent the business model changes, revenues would have been relatively flat year over year as e commerce growth essentially offset the decline in retail sales due to the rationalization of our store fleet. These results are consistent with our focus on driving higher quality revenues and improving our profitability. In terms of our channels, 3rd quarter wholesale revenues declined 2.2%. I'll discuss regional performance shortly, but the overall decline is primarily due to the business model changes I just mentioned. Our 3rd quarter DTC comp was a positive 7.0%. At retail, our comp was up 0.4 At retail, our comp was up 0.4%, illustrating the continued improvement in our underlying business. Overall, retail sales declined 7.2%, reflecting the declining store count. Consistent with our store rationalization plan, we operated 80 fewer stores compared to the end of last year's Q3 and ended the quarter with 4 74 stores. Our e commerce business continued its rapid expansion as it grew by 25.2% over last year's Q3 with double digit comps in each region. We sold 13,100,000 pairs of shoes in the quarter, a 7.5% increase from the prior year. The average selling price of our footwear was $18.17 down 9% as our product, store and channel mix continues to change. Turning to our regions, let me first note that given the limited impact of currency in the quarter, the following revenue amounts are as reported. In the Americas, our revenue was $120,500,000 up 5.1%. We saw growth in each channel, reflecting increasing brand strength across the region. Wholesale revenues grew by 0.6% with improved profitability as we focused on higher quality revenue and had limited excess and end of life inventory. Our Americas 3rd quarter DTC comp increased by 9.2%. Our retail comp was up 2.8%, and retail sales increased 1.4% despite having 12 less stores compared to last year's Q3. E commerce sales increased 28.5%. Our enhanced use of digital marketing and the build out of our social commerce capabilities is driving growth in this area. In terms of our business in Asia, overall revenues in the region were $80,000,000 down 12% versus prior year. Robust e commerce results did not offset the business model changes and store closures. Wholesale revenues declined 10%. This reflects the sale of the Taiwan business in Q4 last year. In addition, we are continuing to pursue business model changes to drive higher quality revenues and improved profitability across Asia. In Japan, where our wholesale accounts have operated single branded stores, we are transitioning to a multi brand model. This necessitates closing those single branded wholesale stores. And while that process is well advanced, the expansion of our multi brand business is in an earlier phase. This transition, which will bring the Japan business model more in line with the country norms for global brands, will continue to be a headwind for us through next year. Our Asia third quarter DTC comp was 3.7%. The retail comp declined 2.9% as conversion gains and increased units per transaction did not offset lower average selling prices due to the mix of full price and outlet stores. As compared to Q3 last year, we operated 61 fewer full price stores, while we increased outlets in kiosks by 3 for a net reduction of 58 stores. Retail sales declined by 20.8%, reflecting the lower comp and the lower store count. E commerce sales increased by 17.8% as we continue to drive improved results through better management of promotions and heightened consumer engagement. Europe delivered a solid Q3 with revenues of $42,500,000 up 6.2% over last year's Q3. Wholesale and Internet channels grew, while our retail results were negatively impacted not only by store closures but by the terrorist activity in Russia. Wholesale revenues increased 8.9%, primarily due to improved FX rates compared to the prior year. Our European 3rd quarter DTC comp was 4.8%. Our retail comp declined by 2.1% due to the negative impact on our Russia business and the aftermath of the terrorist attacks. Excluding Russia, our retail comp was up 4.1%. Total retail sales declined 5.8% as a result of the retail comp and operating with 10 fewer stores than in last year's Q3. E commerce sales increased by 26.2 percent as we successfully drove more traffic to the site and conversion rates held steady with last year's Q3. Turning to other items on our P and L. Our gross margin was 50.8%, up 100 basis points over our guidance and last year's gross margin of 49.8%. Our SG and A expenses were $120,800,000 down $2,900,000 from the prior year and in line with guidance. $3,600,000 of charges related to our SG and A reduction plan are included in this amount. This charge was a bit higher than we had guided due to some of the movement with these charges between Q3 and Q4. Income from operations was $2,700,000 compared to last year's operating loss of $1,200,000 Improved gross margins and lower SG and A more than offset the modest decline in revenues. The net loss attributable to common stockholders after preferred share dividends and equivalents of $3,900,000 was $2,300,000 Our loss per diluted share was 0 point 0 $3 compared to last year's loss of 0 point 0 $7 The weighted average diluted common share count used to calculate EPS was 71,900,000 shares for Q3. Turning to the balance sheet, we ended the quarter with $178,200,000 in cash compared to $150,200,000 at the end of last year's Q3. We repurchased $17,100,000 of our common stock during the Q3 and at September 30, there were no borrowings outstanding on our credit facility. I do want to note that after the quarter ended, we amended our credit agreement to increase the size of the facility to $100,000,000 from $80,000,000 with more favorable terms. Inventory at the end of the Q3 was $140,300,000 17.2 percent below last year's Q3. Year to date, we generated $80,400,000 of cash from operating activities, an increase of more than $50,000,000 compared to the $29,400,000 of cash generated during the 1st 9 months of 2016. Let me turn now to our guidance. Regarding currency, I want to note that our guidance is on an as reported basis. I also want to call out that our guidance does not reflect any meaningful changes to foreign currencies compared to today. With respect to the Q4 of 20 17, we expect revenues to be between $180,000,000 $190,000,000 compared to $187,400,000 in last year's Q4. This guidance incorporates the impact of the sale of our Middle East business in the Q2 of 2017 and our Taiwan business in the Q4 of 2016. Excluding the impact of those changes and using the midpoint of our guidance range, revenues would be up low single digits. This guidance also reflects the impact of store closures and transfers. We plan to close another net 12 stores in Q4, which will result in a total of net 96 fewer stores at the end of 2017. This will bring our total store count down to 462 from 558 at the beginning of the year. We expect 4th quarter gross margins to be approximately 43% or 100 basis points above last year's 42% rate. Our SG and A for the Q4 is expected to be approximately $115,000,000 inclusive of approximately $2,000,000 of costs associated with our SG and A reduction program. This is approximately $3,000,000 lower than last year's SG and A of $118,500,000 Based on our Q4 guidance, we are reiterating the previously provided full year 2017 guidance. Specifically, we continue to expect revenues to be down low single digits compared to the prior year. Our gross margin is expected to be approximately 50%. SG and A for the full year is expected to be between $490,000,000 $495,000,000 which includes approximately $10,000,000 associated with the implementation of our SG and A reduction plan. In summary, I'm pleased with the strength of our Q3 results. Our continued progress driving quality revenue, improving our operational capabilities and reducing our SG and A reinforces my confidence in our ability to get back to double digit EBIT margins. At this time, I'll turn the call back over to Andrew for his final thoughts. Thank you, Carrie. The Q3 was another strong quarter for us, both in terms of our financial performance and the progress we've made against our strategic initiatives. We have a strong springsummer 'eighteen collection, and I'm excited about year 2 of our Come As You Are marketing campaign. Ongoing operational improvements will lead to greater efficiencies as we continue to focus on our SG and A cost reduction plan. We remain committed to delivering significant improvements in shareholder value in the coming years. Before closing, let me once again express my sincere thanks to our global team of associates. Their enthusiasm, dedication and hard work is essential to the success of our company. Now, operator, I'll open the call for questions. Thank you. We will now begin the question and answer session. Our first question is from Erinn Murphy with Piper Jaffray. Great. Thanks. Good morning. I guess I had three questions for you guys. I wanted to focus first on the Q3 and just the Asia business overall. I think, Carrie, you talked about the transition in Japan in particular. If you could just provide a little bit more detail on kind of what guys are trying to accomplish there? And then maybe just help us understand the dynamic of what you're seeing in China, South Korea? And then broadly on that region, when should we start to revisit a growth thought there? Great, Aaron. Let me take that. So, if we look at sort of Asia broadly, as a reminder, we're down 12% in Asia for the quarter, where strong e commerce growth wasn't sufficient to offset the business model changes. Asia is our region that's most significantly impacted by all of our changes. There are major strategic shifts relative to OI and we planned those, but and we've also incorporated those in our historic guidance and our future guidance. As a reminder, there's kind of 3 big elements to that transition. The transition of non strategic markets where we sold Taiwan and the Middle East, significant store closures, the majority of our store closures this year have been in Asia. And lastly, we're undergoing a transition in Japan. I know that was a specific part of your question. But before I get to Japan, if you think about this, the transition of the non strategic markets and the store closures, they're the majority of the decline. They're the majority of that 12% decline. Relative to Japan, consistent with our long run strategy our long run strategy of focusing our efforts on higher quality revenue and improving the overall profitability of the business, we're undergoing a transition in the Japan business from a single branded business to a business that's far more focused on digital commerce, on e commerce and on multi brand wholesale. To that end, we're focusing on e commerce growth and we've been successful in driving growth in that arena. We're also closing company owned stores and partner single branded stores to reduce our reliance on single branded points of sale and we're gaining distribution and growing our distribution in multi brand wholesale. So, accounts like ABC March, Yoda, ZBO would be great examples. We're making great progress on repositioning the business in Japan And I think elements 12 in terms of growing e commerce and downsizing our single branded business is going well. As we look at the multi branded wholesale, it's really going to take us through 2018 to achieve the growth we expect, but we're making good progress. This is pretty consistent with how other brands would operate in this marketplace and it's really it's executing as we expected it. Okay, great. That's helpful. And then maybe just a quick one for Carrie. On just the inventory at the end of the quarter, down 17%. I think a lot of that is some of the exit of your non core categories. Can you just talk about how that's trending in the core categories? Yes. So as we think about the overall inventory number, certainly we're pleased with the decline year on year. And really, the bulk of the decline is cleaning up excess and obsolete inventory. So what's in the line now or what's in the inventory base now is primarily core in line product setting us up for the Q4 and then leading into 2018. So we're focused on overall improving the inventory turns in the business. And this is just a result of that. So I think what you've seen all year long is us consistently coming in with inventory levels lower than the prior year. And it's just a matter of improving that flow of inventory to all of our channels. Okay. And then just last question, you guys sounded still pretty confident on kind of double digit EBIT over time. I mean, can you just I know it's early, we're not quite at the end of this year, but can you just help us think about some of those puts and takes that you're assuming as you start the planning for fiscal 2018? Thank you. Yes. So as we let me talk a little bit about how we're looking at 2018 and then I'll come back and talk about our midterm guidance with respect to double digit EBIT margins. As we look ahead at 2018, we're not giving detailed guidance at this time, but I think it's important to kind of have an overview of how we're expecting that top line to develop. So the biggest impact to 2018 will be the continuation of our store rationalization effort. And really that's the impact of the stores that have closed partway through this year, as well as the stores that we have planned to close in 2018. So we expect a headwind in our revenue line of approximately $50,000,000 associated with those store closures. We expect that that revenue decline will be offset by growth in e commerce as well as growth in wholesale. So if we think about 2018, if we adjust for essentially the store rationalization effort and kind of the lapping of some of the business model changes, we would be up mid single digits as compared to this year. So when we think ahead to double digit EBIT margins, we've said a few times, we don't expect to achieve that obviously in 2018, but we continue to be confident in our ability to get to that in the midterm. The next question is from Jonathan Komp with Baird. First, Kerry, I just wanted to clarify. Last quarter, I think you said the mid point of the Q3 revenue guidance would have been about flat on an underlying basis. And now today, I think you just said the results were roughly flat and I know you're above the high end on the revenue. So I just wanted to clarify if that's apples to apples or if there are any other changes going on during the quarter? Yes. So, no, it's essentially just adjusting for the business model changes. If you'd have factored in store closures, it would have been up, it would have been up over prior year. Okay, great. Thank you. And then when you look at the bridge to low single digit growth in Q4, I was hoping you could maybe just give a little more clarity on what you're seeing there, especially since I think you implied selling more spring and summer product into the Q3 than usual. So I'm wondering is that going to continue into the Q4 or just trying to walk through some of the puts and takes? Yes. I mean, I think as we look at the Q4, there's a couple of things that are important factors. From a product perspective, you referenced, we're focused more and more on our clogs, sandals, and slides. Obviously sandals, slips and slides drop off in the Q4, but we think clogs and line clogs have significant traction in that period. We have de risked our assortment. We have far less boots in our assortments and far less seasonal products in the assortment. So I think we're confident we have the right product mix. As we think about it from a channel perspective, obviously, it's a more of a DTC quarter, both our e commerce and retail business become a larger share of the business. And given our recent trajectory on e commerce and the traction we're getting on a global basis, we feel confident in the guidance that we've provided. Yes. And to take you back to the mid being up low single digits, again, if you take the midpoint, which would be 100 and $85,000,000 there are a few $1,000,000 related to the Taiwan business, the Middle East business and the China transfer stores that we've kind of outlined that gets you to that low single digit number. Okay, great. And then just a broader question on the Americas and the brand positioning. And I know you shared some high level details on the brand survey you completed. I'd be curious if you had any more color there for the Americas specifically. But really just looking at 5% growth year over year for revenue even with the store closures. I think wholesale has been up now 2 quarters in a row for Americas for the first time in a while. So is there anything other than some of the I know you outlined the product and marketing initiatives. Is there any sort of broader trends you can identify that's helping the business? Just looking for any more perspective there. Yes. As we kind of focus on the Americas, yes, I think we are seeing some firmness and some strength in the business that we're excited about. We think that is largely driven by the product and marketing strategies we put in place. As we look at the strength of that or the growth or the strength of the business, it is driven by clothes and sandals. That's what's driving the business in the Americas. We do see the marketing campaign being certainly well received in the marketplace. The use of digital and social to reach the consumers is clearly having an impact. And I guess the one other trend that we see is an increasing interest in the brand at the teen to college age, student age. We see a lot of athletes or a lot of athletes wearing the product pre and post sports events. So I think that's a trend that we see and we frankly were trying to accentuate with our social media. And I think the additional thing relative to the brand survey that I'd highlight that it was certainly of interest to you and I'm sure interest to us and I'm sure will be of interest to you is the double digit growth that we've seen in desirability, consideration and relevance. We saw that across all of our 5 major markets where we focus our advertising dollars. So we really believe that the Come As You Are campaign and the marketing efforts that we've been undertaking this year is driving renewed interest in the brand. Great. That's helpful. Thank you. The next question is from Jim Duffy with Stifel. Thanks. Good morning, everyone. Nice job in the quarter. Couple of questions. Andrew, you had mentioned positive response to the spring line. Any sort of qualitative comments or quantitative comments you can add to this? And then related to that, I'm curious, are there any change to your planned shipments for springsummer 2018 that might hit in the Q4 relative to the previous year? Yes. So, obviously, we don't we haven't for some time now released preorder or backlog information. And what I can reiterate is that we are certainly seeing we're pleased with the response we're getting relative to the springsummer 2018 line. Customers seem to be excited about it. I think they're particularly excited about LiteRide. We mentioned that in our prepared remarks. It's a new tier to our assortment where we're bringing enhanced comfort, enhanced styling at a slightly higher price point. And I think that's resonating with customers and we hope it will resonate with consumers too. In terms of 4th quarter shipments of spring 2018, I would say it's roughly consistent with what it has been historically. We have the opportunity to deliver spring 2018 for warm weather doors here in the United States. And then obviously in Southeast Asia, a good amount of spring 2018 gets delivered in the Q4, but it's pretty consistent with what it was last year. Very good. Thanks. Carrie, question for you on the inventories, very tight. Was that a function of promotion during the Q3 or do you feel the Q3 from a gross margin standpoint is a fairly normalized compare at this point? Yes. So I do think the gross margin rate is fairly normalized at this point. We had a big pop obviously in Q3 last year from a gross margin rate standpoint. So I think we're at a good pretty good landing place right now. In terms of the inventory, it's really just a matter of having clean inventory. So it was not a result of promotional, highly promotional activity. What it's been is really our internal operations process around inventory planning has been very disciplined, are open to by channel, by region has been very disciplined. So are open to by channel, by region has been very disciplined. So it's really just us managing our inventory better. Very good. And related to that, Kerry, can you comment on the view to operational improvements and gross margin opportunities into 2018? Do you expect to be able to continue to make forward progress? So, where we're tracking to be at the 50% gross margin rate for this year, we do believe as we've guided in our midterm that we expect gross margins to be in the low 50s. I think we've made some significant improvements both in 2016 and 2017 in our overall gross margin rate. Think the gross margin rate improvement going forward will be incremental as opposed to some of the step change that we've seen with the 150 basis points improvement year over year. Very good. I'll leave it at that. Thank you. Okay. Yep. Our next question is from Mitch Kummetz with Pivotal Research Group. Yes. Thanks for taking my questions. I wanted to go back to the double digit EBIT margin because in broad strokes and maybe I'm getting a little ahead of myself here, but in broad strokes you guys have about $1,000,000,000 business and it sounds like you're expecting sales to be sort of flattish next year. If I kind of think of the business as $1,000,000,000 based on your SG and A reduction plan, you're talking about $30,000,000 to $35,000,000 of incremental operating income. I feel like when I do that math, it kind of puts me at a 3% to 4% EBIT margin business by 2019 and there's still a pretty big gap from there to double digits. And I'm just trying to understand how to think about where you guys have opportunity to bridge that gap over time. I'm just is it on the sales line? Is it on the gross margin line? Is there long term opportunity for SG and A reductions, maybe you tackle some additional stores that aren't currently in the plan? Could you just help me think about that a little bit? Yes. So the way we look at it is if you take starting with 2016 as our base and to your point, we're relatively we're slightly down low single digits this year. We're guiding we've talked about being relatively flat in 2018. With our SG and A reduction plan with some improvement in gross margin rate, we don't think it's going to take all that long for us to get to double digit EBIT margins. We feel like the midterm gets us in the midterm, we can get there. So I think we can talk after about your model, but I would say 3%, 4% in 2019 seems extremely conservative to me. Yes, that's definitely too low for 2018, Mitch. 2019. And then obviously, you've got really good if you believe margins are around 50%, low 50s, we've got our cost reduction plans, which I think we've laid out and we can go through in more detail. But then you get a little bit of revenue growth and at 50% margins, the flow through is significant and the math works. Okay. And then secondly, you talked about some SKU and door expansion. Can you talk a little bit about that and what that might mean to your wholesale business? I'm guessing that's in reference to kind of the spring 'eighteen orders. Is that right? Yes. I think the biggest thing there is it's really look, the way we think about it, our wholesale partners are economic animals. They do what makes sense for them, right? And as they look at their 'seventeen business, they've seen better sell throughs. They've seen stronger margins. And as a result of that, we feel like in key accounts where we're really focusing, we have opportunities for greater share of shelf and we're receiving representation that gives us greater share of shelf and some door expansion in key accounts where we maybe not being represented before. So we feel good about the opportunity to grow the wholesale business with a little bit of door expansion. I would say the majority of the dollars are actually driven by faster sell through and greater share of shelf in existing accounts. Got it. And then maybe just one last quick one, kind of housekeeping. Carrie, you mentioned, I think it was about $50,000,000 headwind on store closures next year. What does it end up being on 2017? Because obviously there's some impact this year. Can you just give us the number for 2017? Yes, I'll double check it, but give me a minute and I'll just confirm. I think it's around $40,000,000 in revenue this year as compared to 2016 in terms of store closures. Got it. Okay. Thanks. Yes. Yes, I think that's what it is, Mitch. We'll come back to you if that's not correct. Okay, great. Okay, good luck guys. Thank you. Our next question is from Sam Poser with Susquehanna. Good morning. Thanks for taking my question. A couple of things. As far as the inventory, I know that it's way down, but what's an optimum sort of forward looking turn? Because you're still using your numbers, you're still running with 17 weeks forward supply, which is well down from 16, 17 weeks forward supply, well down from last year, but it still seems a bit elevated. Could you give us some color there as to what you think and what your targets are? Yes, Sam. So I mean, yes, I think we feel great about the progress we've made frankly around inventory. As Kerry talked about earlier, it was really around instituting some enhanced planning processes, plan this from the beginning and really planning each of our channels based on a turn and forward weeks of supply. I think the level we're at is a strong improvement over where we have been. Do we feel like we can make some incremental progress from here? Absolutely, we do. We can certainly see opportunities in certain places around the business. Are we going to see that kind of change again going forward? No, very unlikely. It's going to be more incremental, but I don't 100% disagree with you. There is further opportunity. Is there what is the difference between your direct inventory turn retail and e commerce versus your wholesale turn? I mean, because I would assume as you shut down more stores that should help your inventory? Yes, exactly. I mean, obviously, our wholesale business turns faster than our DTC businesses and our e commerce business turns faster than our retail businesses. So all of the transitions we're making, as you're highlighting, will increase turns in the future. Okay. Thank you. And secondly, sort of a follow-up to the other questions asked, how do we get to get to this low 50s growth and low 40s SG and A, that's all good and so on. But how do we start seeing the top what's going to trigger sort of real top line growth here as I think Mitch mentioned or Tim mentioned, it's going to be flattish next year? And then, I mean, where do we start seeing when can we start seeing this business sort of expand from that $1,000,000,000 base? As you look out, I mean, what are you looking at? Because that's really going to be the trigger to get the EPS to improve once you get through your other projects. Yes, absolutely, Sam. So, I mean, obviously, we've been doing a lot of hard work and very focused on our cost reduction program, and we think that's yielding very tangible and significant progress. But ultimately, we need to get the top line moving. I think what's going to cause that is product and marketing. Those are the key drivers. As we look at product, I think we gain more and more confidence around our focus on clogs and sandals. We see it working. We see our customers tell us it's working. We get that feedback from consumers and we think that will continue to play forward into the future. We see our marketing initiatives working as well and we think that will continue to build and play forward into the future. The one thing I would point out, if you look at this quarter, we did see growth in both the Americas and Europe, right. So 2 out of our 3 regions grew in absolute terms. Now overseas, we're a little aided by some currency, but we've got 5% growth in the Americas and 6.2% growth in Europe in this quarter. And as I highlighted earlier in answer to Aaron's question, Asia went backwards because largely because of a lot of the strategic changes that we're making. So as we get through those changes, we think that we can continue we can start to build the top line and drive growth in the brand and the revenue for the overall company. And I think the key element to add to what Andrew just said is, we'll be building off a quality revenue base. And that's not always been the situation, right? And so the cleanup of the discount channel sales, getting out of this low margin business, making sure that what we're selling is profitable, that's a better place to grow from. And so part of that challenge is essentially getting through 2018 for the most part in terms of that headwind we face from that cleanup. That said, we continue to improve profitability while we do that. Just a quick follow-up on that. You said 2 things. You said hitting this double digit EBIT in the next in the mid term, but then but what's the actual target for 'nineteen? Are you saying you're going to you can get to double digit EBIT in 'nineteen? Or is this is that extended beyond that? I just want Yes. So at this point, we're not even giving specific guidance on 2018. So we're definitely not giving guidance on 2019. But what we're reinforcing is that we do believe double digit EBIT margin in the midterm is achievable. Thanks, Adam. The next question is from Steve Marotta with C. L. King and Associates. Good morning, everybody. Carey, you mentioned in the Q4 that excluding the impact of the internal sales of the businesses, sales would be up in the low single digit range. Does that include store closures? And if not, what would the number be otherwise? Yes. So that does not include store closures. That's essentially the business model change around the model change around the Middle East, Taiwan and those things and that's taking it from the midpoint. The retail store closures, we've not called out in the quarter how much that revenue decline is, but it isn't it is meaningful in terms of the overall and essentially what's happening there is e comm and wholesale and it's compensating for that. Okay. And I was going to ask the same question as it pertains to 2018. I think you said that there is a $50,000,000 headwind pertaining to retail. There's still some residual other internal actions that are occurring. Can you quantify that in total? Yes. So actually, for the bulk of it, the bulk of the impact in terms of that $50,000,000 headwind is store closures. And so we do have a little bit of we did the Middle East transaction in spring, but that actually is embedded in the store closures because we sold retail stores. And we've essentially completed the lapping Taiwan. So it's pretty clean and when we get to 2018 in terms of it primarily just being store closures. And what about and okay, that would include Japan, I understand. Yes. Yes. Yes. Because the majority of the loss of revenue is still closures in Japan. Yes. So that really in 2018, that really captures the majority of the impact. Great. One last little housekeeping question. When is the last time you repurchased shares? So we repurchased shares in Q2 and we repurchased shares in Q3. So Q3, we bought back 2,100,000 shares for $17,100,000 at an average cost of $8.31 a share. And year to date, we've repurchased 3,400,000 shares. So we've done about 27, a little over $27,000,000 in share buybacks year to date and the average cost was at $7.90 And prior to that, it had been, I think, back to 2015 before we've been in the market. Yes. We have no further questions at this time. I'd like to turn the call back to Andrew Reese for closing remarks. Yes, thanks everybody. So thank you for joining our call today and your continued interest in the company. We appreciate it. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.