Earnings Call: Q3 2017

Oct 10, 2017

Good day, ladies and gentlemen, and welcome to the Levi Strauss and Company's 3rd Quarter Earnings Conference Call for the period ending August 27, 2017. All parties will be in a listen only mode until the question and answer session, at which time instructions will follow. This conference is being recorded and may not be reproduced in whole or in part without written permission from the company. A telephone replay will be available 2 hours after the completion of this call through October 16, 2017 by calling 1-eight fifty five-eight fifty nine-two thousand and fifty six in the United States and Canada and 404-five thirty seven-three thousand four hundred and six for all other locations. Please use conference ID 6,671,3492. This conference call also is being broadcast over the Internet and a replay of the webcast will be accessible for 2 months on the company's website, vivastrauss.com. I would now like to turn the call over to Edelita Tychepko, Investor Relations at Levi Strauss and Company. Good afternoon, and welcome to our quarterly conference call. I'm pleased to introduce members of the Levi Strauss and Company management team. Chip Berg, President and CEO and Harmit Singh, Executive Vice President and CFO. Before we begin, let me briefly remind you of a few items. Our discussion today may include forward looking statements, including statements regarding our strategies and expected financial and operating performance. Although these statements reflect the best judgment of our senior management, they involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the statements as more fully described in our quarterly report on Form 10 Q, our registration statements, today's earnings press release and our other filings with the SEC, all of which are available on our website at levistrauss.com. We disclaim any responsibility to update our forward looking statements. Other unknown or unpredictable factors could also have material adverse effects on our future results, performance or achievements. We provide information on our website about how we compile various measures used to describe our business performance. Participants on today's call may discuss non GAAP financial measures. Reconciliations and descriptions of our non GAAP financial measures are available in the Investors section of our web site as well as in today's earnings press release. Finally, today, we filed our quarterly financial report on Form 10 Q with the SEC, which is now available on our Web site. Now, I'll turn the call over to Chip Bogue. Thanks, Edelita. Good afternoon, everyone, and thank you for joining us today to discuss our Q3 results. We had a very strong quarter. Our strategy is to drive the core, expand for more, become a leading omnichannel retailer and drive operational excellence are working as we again delivered profitable growth in a very challenged environment. We're particularly pleased with the results from our retail business, which is outperforming others in our industry and helping to offset the challenges we're seeing in the U. S. Wholesale environment. Against this backdrop, we appreciate the continued hard work of our team in staying focused on our strategic priorities and our consumers. We grew revenue 7% on a reported basis this quarter and 6% in constant currency. Performance was driven by many of the same trends we've seen for the past several quarters, including continued double digit growth in our tops and women's businesses, strength in direct to consumer and impressive results in Europe. Despite this top line performance, adjusted EBIT was up just 1% this quarter, reflecting 2 discrete items that Harmit will discuss. Now I'll walk you through this quarter's performance drivers. This past quarter, we continued to see strong momentum in our tops business generating a 43% increase, which includes key items such as the graphic T shirt and trucker jacket. Growing our tops business is a key to extending Levi's into a true lifestyle brand and our efforts are delivering results. Trucker jackets continue to outpace our overall tops growth across both men's and women's as consumers look to Levi's for authentic self expression and personalization. And last week, we launched in the U. S. The Levi's Commuter Trucker jacket with Jacquard, which we created in collaboration with Google. This jacket lets you access your device for music, navigation and communication, such as text and calls with the swipe of your sleeve. It's our first foray into connected apparel and an exciting evolution of our iconic trucker jacket, which celebrates its 50th anniversary this year. Turning to women's, this business delivered its 9th consecutive quarter of growth with revenues up 27% globally. Women's now represents more than $1,000,000,000 annually and has grown almost 40 percent since we relaunched the women's line in 2015. Women's skinny fits continue to do extremely well, led by the 711 and 710, which have been key pillars of the Levi's marketing effort. In direct to consumer, our 16% growth was primarily driven by our existing retail footprint, reflecting strong traffic in all regions and our broader product assortment, as well as 22% increase in e commerce. We continue to invest in the online shopping experience and this past quarter we introduced our virtual stylist, an artificial intelligence powered chatbot. This brings the experience of working with our in store style experts online and makes it easier for consumers to find their perfect look and fit on levi.com. Consumers can chat with a virtual stylist on their mobile device, laptop or through Facebook Messenger 24 hours a day. This is just one example of how we're innovating the online shopping experience to get closer to our consumers and ultimately drive sales in this important channel. Europe continued its strong pace of growth, up 23%, driven by the strength of the Levi's brand and relentless focus on the consumer. From experimenting with T shirt customization in London to showing up in force at more than 35 summer festivals, the team is delivering an unmatched brand experience and it's paying off. Turning to wholesale, we remain focused on getting our U. S. Business back to growth despite a challenging U. S. Landscape. As we've discussed, our strategy for U. S. Wholesale is to increase share within existing key customer accounts, further expand into premium and specialty retailers and grow our value channel, and I'm pleased to share that we've made progress on all these fronts. In our key customers, we're seeing strong growth in our women's business, fueled by the success of several fits, including the 711 skinny, which more than doubled this quarter. We've increased our penetration and elevated our product range with specialty and premium accounts. These accounts represent everything from smaller specialty retailers to premium stores such as Nordstrom and Bloomingdale's. And in the value channel, Signature and Denizen together grew a record 34% this quarter. The value market represents a huge opportunity. Across both brands, we're seeing significant growth in men's, women's and kids. And we've gained additional floor space within our current retailers as well as new doors. This fall, we expanded the distribution of our juniors Denizen product to over 700 Kohl's stores. While we've made good progress, we still have opportunities as we work to address challenges within the important U. S. Wholesale channel, particularly with the Dockers brand, which was down 10% this quarter. We remain focused on returning Dockers to profitable sustainable growth, but it's going to take some time. From a product perspective, we introduced Dockers Smart 360 Flex Khaki in late August. And while it's still early, we're encouraged by the positive consumer response and sell through. We're focused on growing our direct to consumer business for the brand. We're currently testing company operated mainline stores in Europe and just opened 2 Dockers premium outlets in the U. S. With plans to open a few more next year. We also launched the new Dockers always on brand platform and global advertising campaign. We're confident in the new marketing, which will be reaching a broad audience digitally and on television in the U. S. And Europe. I want to take a moment to talk about marketing. Without a doubt, the Levi's brand is stronger than it has been in a long time, in part driven by its very successful global advertising campaign, Live in Levi's. This past quarter, we launched the latest execution of the Live in Levi's campaign with a spot that celebrates our global connectedness through music, dance and Levi's. The Levi's brand continues to grow as a cultural icon, resonating with more and more consumers worldwide as a true lifestyle brand. In today's unpredictable market, there will be winners and losers, and I believe those who invest in their brands will make it out on top. Our data shows that when we invest in our brands, we can drive growth. One of the strongest examples has been in Europe where we upped our advertising investments earlier this year and are seeing those investments pay off. These results combined with the positive data we're seeing from our global marketing tests overall have further strengthened our confidence in the power of our brand and the effectiveness of our global marketing efforts. As such, in line with what we shared on our last call, we are increasing our 4th quarter advertising and media spend. In summary, we're pleased with our progress this quarter. Our strategies are working and despite the challenging retail environment, we're achieving profitable growth. We've invested in our products, our brands and our distribution and we continue to innovate for the future. I feel confident that we've entered the Q4 in a strong position. With that, I'll turn it over to Harmit, who will review our Q3 financial performance. Thank you, Chip. Welcome to everyone joining our call. My comments today will reference 3rd quarter comparisons on a year over year basis in U. S. Dollars unless I indicate otherwise. Revenue grew 7% for the quarter on a reported basis and 6% in constant currency. Year to date, this reflects 6% growth on both a reported and constant currency basis. Global direct to consumer revenue grew 16%, making this the 6th consecutive quarter of double digit growth. Approximately 1 sixth of the growth is driven by e commerce and the balance is a combination of stronger performance from existing stores and the 62 net new stores we opened since this time last year. In the global wholesale channel, revenues grew 4%, primarily reflecting brand momentum in Europe, where strong consumer response to product, higher traffic and conversion drove wholesale revenue growth of 21%. In the Americas, wholesale revenue declined 1% reflecting continued pressure in this channel in the U. S. Lower Levi's and Dockers revenues were largely offset by record growth in our Signature and Denizen brands, up 34% collectively, driven by higher volume sales in existing doors as well as new distribution in Kohl's. Gross profit grew 11%, outpacing revenue growth as gross margin expanded 180 basis points to 51.8%. This was due to the positive impact of growth in our higher margin direct to consumer and international businesses as well as a favorable transactional FX impact of approximately 70 basis points. SG and A as a percentage of revenue was up 240 basis points compared to last year. Half of the rate increase pertains to 2 discrete items unrelated to our business performance this quarter. First, in the prior year, SG and A included a benefit of $7,000,000 from the resolution of a vendor dispute. 2nd, we recognized a non cash stock compensation expense this quarter. This was related to an adjustment to the timing of stock compensation accruals for retirement eligible employees. The cumulative expense accelerated and booked this quarter was $11,000,000 with the majority of this relating to prior periods. The other half of the SG and A rate increase this quarter reflects higher selling expenses associated with the expansion of our company operated retail network and investments in our U. S. Wholesale business in sales and marketing as we focus on driving growth and market share gains in that channel. On a gross basis, we have opened 53 new company operated stores year to date and we remain on track to open 80 new company operated stores for the full year as previously guided. Adjusted EBIT increased by 1% and adjusted EBIT margin declined 70 basis points due to this quarter's stock compensation charge and last year's vendor dispute resolution. Excluding these items, adjusted EBIT would have been up double digits and adjusted EBIT margin would have increased year over year. A reconciliation of adjusted EBIT can be found in our earnings press release. Net income of $88,000,000 declined $10,000,000 reflecting FX losses on hedging contracts of $19,000,000 primarily driven by the weakening of the U. S. Dollar against most foreign currencies. Now I'll share more detail on the Q3 results of our 3 regions. Net revenues in the Americas grew 2% on both a reported and constant currency basis, reflecting higher direct to consumer and international revenues. Our overall U. S. Business was up slightly, driven by double digit growth in direct to consumer, partially offset by lower U. S. Wholesale revenues. Operating income for the Americas was flat as higher revenues and gross margins were offset by higher selling expenses and last year's $7,000,000 vendor dispute resolution. Europe grew 23% on a reported basis and 20% excluding favorable currency effects of $8,000,000 Our diversified business model is working really well as revenue continued to increase across all markets and channels. As an example, our 4 largest mature markets in Europe, France, Germany, Spain and the UK collectively continue to grow double digits. Tops and women's comprise about half the region's revenue and continue to profitably grow. We've also seen stronger store traffic and higher conversion in the region compared to last year as the Levi's brand continues to gain momentum. Operating income growth of 32% reflects higher revenue and SG and A leverage. Results in Asia were mixed. Revenue grew 2% on both a reported and constant currency basis. Revenue from company operated stores grew double digits, primarily reflecting net store expansion. E commerce and traditional wholesale in the region also grew. However, our franchise business continued to decline. Operating income declined $2,000,000 due to lower China revenues and increased franchise support to clear out inventory. As discussed in prior quarters, we are currently working on a strategy for China, which includes a comprehensive review of our approach to assortment, pricing, franchise terms and omni channel within this market. We expect the turnaround will take time. However, we remain confident in the longer term market opportunity. Our balance sheet continues to improve and free cash flow remains strong. Inventory at the end of quarter was 3% lower than prior year as we continue to make progress in optimizing inventory levels. Free cash flow for the 1st 9 months of 2017 was $149,000,000 an increase of $161,000,000 compared to the 1st 9 months of 2016, primarily reflecting lower inventory purchases. The change in timing of the dividend payment and a strong revenue growth this year also benefited year to date cash flows. Total available liquidity at quarter end was $1,200,000,000 comprised of cash of 491,000,000 dollars 681000000 available under our credit facility. Net debt was $578,000,000 and leverage is flat at 1.8. Reconciliations of net debt and free cash flow are attached to our press release. We have lowered our cost of capital and generated solid returns as a company. Looking forward, we will deploy capital across multiple areas to increase shareholder value over the long term. This includes disciplined investments in growth initiatives and enhancements in our technology platform. We entered the 4th quarter with strong momentum. Levi's Signature and Denizen brands are performing well, while Europe and direct to consumer are growing double digits. As we continue to build this business for the long term, we are investing behind our brands and channels. Given this backdrop, we are updating our full year guidance. Based on the strong year to date revenue results, we are raising full year constant currency revenue guidance to a range of 5% to 6%. We are also raising full year gross margin by approximately 80 basis points to roughly 52%. We expect SG and A as a percentage of revenues will be up between 150200 basis points compared to prior year, primarily driven by higher advertising investments, which as we guided last quarter will be up about 50 basis points as a percentage of revenue. Our direct to consumer expansion, which is a combination of new stores, investments in e commerce technology as well as the channel mix shift and the discrete items unrelated to our ongoing business performance that I've discussed. So in summary, despite higher revenues and gross margin, we continue to expect full year adjusted EBIT comparisons will be pressured as a result of the higher SG and A. With that, operator, we'd like to open it up for questions and answers. Thank you. The floor is now open for questions. You. Our first question is going to come from the line of William Reuter with Bank of America Merrill Lynch. Hey guys, good afternoon. Good afternoon, Bill. Hey, Bill. You noted that Levi's and Dockers were down in the U. S. Wholesale segment, which was offset by growth in Signature and Denizen. Can you talk about how much what types of declines you saw in either of those 2 as a whole or those 2 separately? Yes. Bill, don't want to get into specifics, but the decline was largely driven by what's happening with U. S. Wholesale in terms of the environment. If you look at our business globally, Levi's was up close to 6%, which is substantially higher than they were growing a year ago. And so the business is being driven by growth in our women's business, the acceleration of our tops business and geographically, as we mentioned, the growth we're seeing in Europe. Okay. In terms of, I guess, styles, I think a lot of times people perceive that the U. S. Follows Europe. But obviously, you guys are an American brand. Do you believe that the growth in Europe is likely to be followed by the U. S. In this instance? Or do you think that they're somewhat separate with regard to fashion trends? Everybody's looking at me in the room. So I guess I'm answering this one. I think if you look at our women's business first, our results and the success on women's around the world is really fundamentally being driven by 711 and 710, and that's consistent in all regions. And that those 2 fit blocks as well as the 721, the skinny high rise, that skinny profile is still driving our women's business fundamentally. And on the men's side of the business, the slim tapered look, the 502 and the 512, which we just introduced within the last 12 months, those are the 2 hottest fits that we've got right now along with the 5 11, which we've had for quite some time and continues to grow. And that also is consistent pretty much everywhere around the world. So I think if you want to really focus on why is Europe outpacing the Americas or the U. S. Specifically by such a big margin, one is tremendous results on the women's business and 2 is our business skews more to direct to consumer in Europe. We're about fifty-fifty DTC versus wholesale. So we're kind of more in control of our own destiny. I guess the third thing would be the dramatic results that we've had on tops, which also is a it's a global phenomenon, but if anybody traveled through Europe this summer, everywhere you went, you saw the Levi's batwing tea. And they have continued to innovate. We talked a little bit in the script about this digital printing, customizable batwing tea, which we did in one store on Regent Street in London, and we're now expanding it for the holiday season in Europe. So I guess the last thing I would say, Bill, just to put a pin in all of this is, despite the challenges in the U. S. And U. S. Wholesale, I'm really pleased with the balanced growth that we've actually delivered. I mean, all three regions grew, wholesale, retail, DTC. So men's, women's, when you look across the board, we've delivered really a balanced quarter. Okay. And then just lastly, on the second quarter call, you noted that you expected that inventory levels would be up year over year as you guys invest in some of the high growth areas like Europe. Do you still expect that this is the case? Yes. The quick answer, Bill, is yes. As you probably saw in this quarter, overall inventory is below last year. What we are pleased to see is not only the quantity come down, but also the quality improve year over year and the increase that we expect at the end of the year is largely going to be driven by future growth expected in Europe. Great. I'll pass to others. Thank you. Thanks, Bill. Thanks, Bill. Our next question will come from the line of Carla Casella, JPMorgan. Hi. I'm wondering if you could give us more detail on the Kohl's rollout. How much of that happened during the quarter? And is it completed in the quarter? What go on to the next? We began the Coles rollout for Denizen in I would say we started testing it late last year. So we did the rollout across 900 dose on the misses side earlier and now we've added the junior product. So it's really working well. And juniors, to answer your question directly, I'm sorry, I misunderstood it, Carla. It will expand through this quarter, through the Q4. Okay, great. And then on gross margin, it was much better than we expected and you asked the guidance. Can you talk about merchandise margin and how much that was maybe up either in the wholesale or retail we look year over year? We are Carla, as a system, we are selling higher percentage of 1st quality units. So we're not discounting as heavily as we have in the past. And so that's and a lot of that also has to do with the newer styles, etcetera, that we're introducing. So that's a big piece of the margin increase. And it's obviously the FX piece that helps. There's also the structural piece, which is the continued growth of our direct to consumer business and our international businesses that help. So I would say it's a good combination of all three, structural, organic as well as the impact of FX. Great. Thank you. Our next question will come from the line of Grant Jordan with Wells Fargo. Good afternoon. Thanks for taking the question. In the intro comments, I think you mentioned, I forget how you described it, maybe the discount channel in the U. S. As a growth area. Is that correct? No, value. Okay. Value. Is that referring to the off price guys? No. So the comment was really around Denizen and Signature by Levi Strauss. So the key customers there are Walmart, Target, Kohl's. So tend to be more value oriented mass channel, I guess, is another way to think about it. Okay. All right. That's helpful. In terms of the U. S. Wholesale inventory, any view in terms of how conservative those players are heading into back to school and holiday? Again, difficult to give you commentary about the customers. But generally, we as you sense from our guidance, we're taking our full year guidance up from 4% to 6% to 5% to 6%. We feel generally optimistic about the holiday season and our product lines that we're introducing as well as the momentum we've got as we enter the Q4. Okay, great. That's helpful. Okay, that's all I had. Thank you very much. Thanks, Grant. Thank you. Our next question will come from the line of Jenna Giannelli, Citigroup. Hi, everyone. Thank you for taking our questions. With free cash flow continuing to be so strong, could you remind us of your preference for cash allocation and your ideal leverage? And would you consider taking it higher? We've never thought of setting targets for leverage. We are very happy where we are in terms of our current leverage target. We're 1 large below investment grade. As you've seen from recent refinancing deals, both in the U. S. And overseas, we've been able to finance at dramatically great coupon rates. So we are we like where we are. In terms of capital deployment, it's a balance between investing for growth, returning capital back to our shareholders. And then longer term, as we focus on growing certain categories, potentially looking at tuck in acquisitions. But as you've seen our capital deployment, we've stepped it up over the years where we're investing to drive growth is largely across our e commerce business, opening new retail doors and enhancing technology platforms that drive and make us a lot more efficient as a company. Great. And in regards to the Asia business, you described a little bit about new strategy to tackle that market. Do you have any idea or a sense of when we can expect some of the comps that pressures in the China franchise to stabilize? So we are kind of working through this right now. I think to start, bear in mind that China is less than 5% of the total company. It represents a huge opportunity. I'm a huge believer in our long term potential in China. Right now, our revenue is split about 40% of our business is in company operated retail and e commerce and that is growing, actually growing double digits. About 30% is sold through the franchise channel, through our franchise partners and that is down double digits. And then the balance, roughly another 30% or so, is in traditional wholesale, and that's up kind of single digits. So what that tells me is we're executing pretty well in our company operated stores, but we've got some real issues with our franchise business model. And that really is kind of the focus of the strategic work that we're doing in China. We know we've got to make some pricing adjustments there. We will be doing that. We're working on franchise terms and conditions and then working through how do we really deliver a true omnichannel experience to the consumer. I've been to China, I think, 4 times this year. China is by far the fastest changing market anywhere in the world. If you go back 5 years ago, consumers were afraid to use credit cards. It was pretty much a cash economy. In fact, the e commerce business that was done in China 5, 6 years ago was more or less cash on delivery. The guy would show up to deliver your e commerce order. You could try stuff on and pay cash for what you wanted to keep and return the rest right there. Today, nobody carries a wallet. It's all electronic payment between AliPay and WeChatPay. So it is such a fast changing market and it's a market that I still believe has tremendous potential for us. The Levi's brand has a real strong brand equity there, but the competitive environment has changed dramatically in the last couple of years and we've tried to stick to the same basic business model. So we're on it. I think you asked how long will it take. I think it's going to take us a good year to see the business really turn around. We've got some structural things we've got to correct. You know that this business has a long lead time. And but I am convinced we're on the right path and we will get this business turned around and we're committed to it because of long term potential of that market. Great. Thank you. You're welcome. Our next question will come from the line of Karru Martinson with Jefferies. Good afternoon. Just following up on some of the questions. You're 1 notch below investment grade. I mean, is that a focus for you? Would you like to move up that? Or as you said, you're comfortable getting the rates you are without that designation? Yes. The good news, Garo, is we're in a good spot. Given our cash position, it's a good problem to have. We're not tied to any metric, to be honest. I mean, I look at a capital structure and we, when you have a discussion with the Board internally, we look at a capital structure as one that allows us to get access to capital and importantly invest to drive shareholder value in the long term. So again, we've as you know, we refinanced earlier this year in Europe, got some great rates. And looking at capital structure, we have long term maturities, a decent very decent cost of debt. I would say some of the investment grade companies would probably be jealous of that. So that's how we look at it. And it's if opportunities come up, we have to take a look at reviewing our capital structure so we can drive growth longer term and take a look at it. Okay. And when you look at the value channel as you're expanding the business, is there any kind of pushback from your customers wanting to keep Signature or Adenosine exclusive to them? Or is there kind of a small universe where you'll expand out to, and then we kind of draw the line and stop at that point? Well, it is a balancing act. But as you all look at the retail universe just as we do, you see the value channel growing, right? The consumer is very value oriented here in the U. S. And so we do see this as an opportunity. We don't get pushback on anybody wanting exclusives. I mean, Signature is primarily sold in Walmart, but we've been selling it in other customers since before I got here 6 years ago. And Denizen was exclusive at Target for a period of time, but now we are selling it in other customers as well. And I think that's good because the more national these brands become, the more legit they are. But obviously, we don't want it to be a runaway train. It is the right brand for certain customers or certain stores and it is the right brand for a number of consumers in the U. S. And we want to serve those consumers. So distribution is important. We've clearly demonstrated that we can grow these brands. They are on a tear right now. I think fundamentally because the product is great, the price value proposition is great and we've got support from our key customers. And that's all delivering this kind of dramatic double digit growth and we expect that we'll be able to continue to do that. Okay. And just lastly, on the women's side, it's been an area of focus for you guys for many years. It seems like we're finally getting the return on the investment you guys have made. Where is that share gain coming from? Do you feel like Athleisure has peaked? Or where are these sales pickups being taken from? Well, as you know, 1st of all, the women's business is a lot more fragmented than the men's business. So there are a lot of very small brands out there that become easy share governors, if you will. And there has been some of that. I do think to some extent, and I don't have a ton of data on this, but I do believe that there probably has been a bit of shift back to denim from athleisure as we've introduced these our new products, which really have delivered against what the consumer was looking for. And the reason they initially went to athleisure was they wanted comfort, they wanted that soft fabric and as we redesigned our women's platform to deliver against those fundamental consumer wants and needs, that's what's driving our business results. We have clearly picked up share and it has come at the expense of some of the smaller share donors as well as a couple of the bigger brands. And so we are winning right now on women's. We said in the prepared remarks, our women's business is now over $1,000,000,000 in sales. That makes us bigger than any women's brand in the marketplace by far. And so we have momentum. We're going to try to keep that momentum going and continue to innovate to meet her needs going forward. All right. Thank you very much, guys. Appreciate it. All right, guys. Our next question will come from the line of Hale Holden, Barclays. Good afternoon. Thanks for taking the call. I had a couple of very quick ones. Can you give us a sense of the magnitude of the advertising investment in the first half in Europe that helped drive those sales that we should call out kind of in the script? Yes. Again, Hale, we don't disclose by segment the details, but what I can tell you year to date, our advertising expense as a percentage of revenue was flat to last year, I think close to 5%. We are stepping up quarter 4 for the reasons Chip elaborated. During the year, we did step up our investments and advertising for Europe and that probably got traded off with some other investments in our advertising across the globe. So we kept globally the percentage of revenue at Powerwood last year. But quarter 4 is going to be a step up. At the end of the year, we expect advertising as a percentage to revenue to be up about 50 basis points. And this is on a higher revenue number also as we've as the year has progressed. So the dollars is that we're spending on advertising are far higher. Yes. I mean, I see tourists outside our office building in Times Square last 3 to 6 months wearing the Batwing T shirt pretty consistently. And the payoff you've gotten from your advertising in Europe seems like it's tremendous in terms of ROI and increased sales. I just was wondering if there's anything you're doing differently there that's helping accelerate that growth? I mean, real focus has rest of the world on growing tops and women's. I mean, the one thing that's really working in Europe and that's the beauty of our diversified business model. All channels are growing, all categories are up and all geographies are up. I mean, it really speaks to the potential and the size of the prize if all engines start humming. And I think that's a big piece of what's driving growth in Europe. There's no question that Europe is driving a good good part of the company's growth. But as I'd like to remind our friends and my colleagues in Europe, when we were at our peak, when this company was at its peak back in the mid-90s, our Europe business was almost $2,000,000,000 in sales. And today, I mean, we're bigger than $1,000,000,000 but we still have a long way to go to reach kind of where we were as a company 20 years ago. And that's true for us as a company as well. So while we are clearly making a lot of progress and we have a ton of momentum in Europe, and I do believe that the extra investment that we're putting in, in the Q4, much of which is going to Europe, is going to continue to accelerate our growth, and it will accelerate the strength of the brand too on a global basis. We still have more to do to reach our full potential. Got it. And then this was the first time I've heard you guys call out premium growth in U. S. Wholesales. You mentioned Nordstrom's and Bloomingdale's. What percentage of the mix that encompasses now? It's less than 10% for the U. S. Wholesale business, but there's an opportunity that we're trying to tap, Hale. Got it. And then my last question is, Chip, the last couple of years at this time, you've given us a fairly good indication on how the consumer sees ceiling and what broader retail trends may pick up for the Q4 or calendar Q4. I was wondering how you're feeling about holiday period just generally? Yes. Okay. So my first caveat, thank you for asking that. I was wondering who was going to ask that question, so you win the prize. The first caveat is you got to remember for us because of when our fiscal year ends, holiday kind of spreads 2 quarters, our Q4 as well as our Q1 of next fiscal year. You all have probably all seen what the National Retail Federation is saying. I am trying to be optimistic about the upcoming holiday season. We're feeling some buoyancy, obviously, in our own retail business. And we have I know icons and essentials. We're going to have a good focus on icons and essentials. We're going to have a good focus on our trucker jacket, which we're celebrating the 50th anniversary. Sherpa Line trucker jackets have become a year round item in many parts of the world, and we're going to continue to focus on that. In Europe, there's a real clear trend towards buy now, wear now. And with the strength that we're having on graphic tees, we're going to extend graphic tees into fleece, hoodies, all of that. That's going to be big. And in our own e commerce line, our own e commerce business, we will have some exclusives that we'll be launching during the holiday season to drive traffic and excitement on our e commerce business. And last but not least, for any of you who have friends or relatives who are techno geeks, we've got the new trucker jacket, which we've done with Google and it's pretty cool. So at a retail of $3.50 So we've got a lot of exciting things in store for our own business. I also want to be optimistic about U. S. Wholesale. And I said earlier in an interview today that I want to believe that U. S. Wholesale has come close to bottoming out and hopefully we will see it turn over the holiday season. And we're prepared for that if that happens. And we'd like to be a big part of helping all of our big wholesale customers start growing again. Great. Thank you for the time. I appreciate it. You bet. Thanks for calling in. Thanks, Dave. At this time, I'd like to turn the floor back over to the company for any closing comments. Okay. Well, I just want to thank everyone for dialing in and joining us today and for your great questions. And we look forward to talking to you at the end of our fiscal year. Thanks very much and have a good holiday yourselves. Thank you. This concludes today's conference call. Please disconnect your lines at this