Earnings Call: Q4 2015

Feb 11, 2016

Good day, ladies and gentlemen, and welcome to the Levi Strauss and Company 4th Quarter and Fiscal Year Earnings Conference Call for the period ending November 29, 2015. 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 February 18, 2016, by calling 855-859-2056 in the United States and Canada and 404 537-3406 for all other locations. Please use conference ID 31527451. This conference call also is being broadcast over the Internet and a replay of the webcast will be accessible for 1 month on the company's website, levistrauss.com. I would now like to turn the call over to Chris Ogle, Vice President, Investor Relations and Assistant Treasurer at Levi Strauss and Company. Thank you. Good afternoon, everyone, and welcome to our quarterly conference call. I'm pleased to introduce members of the Levi Strauss and Company management team. With us here today again are Chip Berg, our President and CEO and Harmit Singh, our Executive Vice President and Chief Financial Officer. Before we begin, I'll 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 judgments 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 annual report on Form 10 ks, our registration statements, today's earnings press release and our other filings with the Securities and Exchange Commission, all of which are available on our website at levistrauss.com. We expressly disclaim any responsibility to update our forward looking statements. Other unknown or unpredictable factors also could have a material adverse effect 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. You will find the appropriate reconciliations and descriptions of our non GAAP financial measures at the earnings webcast page in the Investors section of our website as well as in today's earnings press release. Finally, today we filed our annual financial report on Form 10 ks with the SEC, which is available on our website. Now, I'd like to turn the call over to Chip Thurg. Thank you, Chris, and good afternoon, everyone. Thanks for joining us today. In fiscal 2015, we made progress as we continue to execute our long term strategies. I'm pleased to report that we delivered a 3rd consecutive year of currency neutral revenue and profit growth with constant currency net revenue growth of 1% and adjusted EBIT growth of 6%. We continue to make progress on our structural economics by significantly improving gross margin and expanding adjusted EBIT margin despite strong currency headwinds. The apparel industry continued to face soft traffic at retail in 2015, coupled with heightened promotional activity and other macroeconomic challenges, as well as our fiscal calendar having 1 fewer week. Despite these challenges, we focused on what we could control and continue to invest behind our strategies in order to build a solid foundation for the future. 4 years ago, we set our long term strategies, grow our profitable core, expand for more, become a leading omnichannel retailer and improve our cost structure. And these have continued to be the backbone of our overall objective to drive profitable growth. This year, we were pleased to see the mix of our business to continue to shift in that direction through the reset of our Levi's women's denim collection, expansion in tops and faster growth internationally and in our direct to consumer channel. I'll turn it over to Harmit now to review our Q4 and full year financial results, and then I'll share more detail on our progress in 2015 as well as our priorities for 2016. Harmit? Thanks, Chip. Welcome to everyone joining our call. My comments today will reference comparisons on a year over year basis in U. S. Dollars unless I indicate otherwise. I will first discuss the Q4 and then follow with comments on the full year. 4th quarter net revenues of $1,300,000,000 declined 7% on a reported basis and 1% excluding $85,000,000 in unfavorable currency translation effects. Recall that our Q4 last year contained an extra week due to our fiscal calendar. Having 1 fewer week this year adversely impacted our 4th quarter revenues by roughly 4 points. Despite this impact, global revenues from our direct to consumer channel grew 5% on a constant currency basis, primarily driven by ongoing expansion of the network in Europe and Asia. In our wholesale channel, global revenues declined 3% on a constant currency basis, but would have been up modestly without the consequence of the one fewer week. Gross profit for the quarter declined 3% on a reported basis to $658,000,000 as compared to $680,000,000 last year due to unfavorable currency translation effects of approximately $43,000,000 However, gross margin grew more than 200 basis points to 51.2%. The improvement primarily reflected lower negotiated sourcing costs and the savings from streamlining our supply chain. We also benefited from growth in our higher margin international and retail businesses and from price increases we took in key markets to help offset the currency effects. 4th quarter SG and A expense of $494,000,000 declined $87,000,000 on a reported basis. The decline was attributable to $32,000,000 in favorable currency effects, lower advertising expenses compared to the prior year and a $31,000,000 pension settlement charge in the Q4 of 2014. These declines more than offset a $16,000,000 increase in expenses related to our ongoing direct to consumer investments, including the addition of 91 brick and mortar stores on a net basis since a year ago. Adjusted EBIT of $168,000,000 in the 4th quarter grew 25% from the prior year on a reported basis and grew 36% without $11,000,000 in unfavorable currency effects. As a percentage of net revenues, adjusted EBIT improved to 13% as compared to 10% last year as the improved gross margin more than offset our higher direct to consumer channel investments. 4th quarter net income was $102,000,000 a significant improvement over last year's $6,000,000 net loss. The net income growth reflected by higher adjusted EBIT, a $47,000,000 decline in restructuring and related charges and without last year's one time pension settlement charge of $31,000,000 Now I'll share more detail on the 4th quarter results of our 3 regions. Net revenues in the Americas declined 9% on a reported basis and 6% with our $24,000,000 in unfavorable currency effects, primarily due to the one fewer week. Beyond these considerations, Levi's and Dockers men's wholesale revenues declined on soft retail condition at major customers and direct to consumer in the region was roughly flat to last year. Traffic remained challenging, but we were able to offset it with strong conversion and modest growth in e commerce. Adjusted EBIT for the Americas declined 8%, inclusive of $6,000,000 in negative currency effects, mainly reflecting the lower revenues. In Europe, net revenues grew 3% without $44,000,000 in unfavorable currency effects, but fell 13% on a reported basis. The constant currency revenue growth comparison was muted due to the additional week in the Q4 of last year, which represented about 5 points of the region's 4th quarter revenues. Growth was driven by ongoing robust retail performance, again, mostly in the UK and Russia. Adjusted EBIT in Europe grew 93%, inclusive of $5,000,000 in negative currency impacts, primarily reflecting a higher gross margin. In Asia, net revenues were up 15% without $17,000,000 in unfavorable currency effects and were up 6% on a reported basis. The environment remains promotional with revenue growth coming from our direct to consumer and franchise network with China comprising nearly half the region's growth in the quarter. Adjusted EBIT in Asia grew 68%, inclusive of $2,000,000 in negative currency impacts, reflecting the higher net revenues and an improved gross margin. For the full year, we are pleased to have achieved the total company financial objectives we shared with you at the start of 2015. Excluding $312,000,000 in unfavorable currency translation effects, net revenues grew 1% in fiscal 2015. This was in spite of the adverse effects of the fiscal calendar shift, which in combination with the launch revenues from exiting the Dockers women's line in 2014 represented roughly 2 points of full year revenues. Beyond these factors, direct to consumer revenues grew high single digits and global wholesale revenues grew slightly, aided by our product introductions such as the new Levi's women's denim collection. Full year gross margin at 50.5% was more than 100 basis points ahead of last year, despite currency pressures of nearly 200 basis points. Advertising spend was 6% of revenues and our SG and A rate of 40.6 percent was nearly flat to last year on a constant currency basis, despite 120 basis points impact from higher selling expenses, primarily related to our investments in e commerce and the 91 store increase in our company operated retail network. And finally, adjusted EBIT grew 6% on a constant currency basis, excluding $54,000,000 in unfavorable currency translation effects, primarily reflecting our improved structure economics. Adjusted EBIT margin remained strong at 11%. Turning to the balance sheet and cash flows. Inventory dollars and units increased modestly, reflecting the new product initiatives we introduced last fall. Free cash flow for 2015 was $81,000,000 a $42,000,000 decline compared to last year. Capital expenditures increased $29,000,000 to $102,000,000 and the 2015 dividend payment of $50,000,000 was $20,000,000 higher than last year. Over the last few years, we made good progress against our objective to strengthen the health of our balance sheet. In 2015, we refinanced $500,000,000 of our bonds, further improving our borrowing rate and maturity profile. And as we and as compared to the prior year, net debt declined to $834,000,000 from $911,000,000 and we held our leverage flat at 2.0. Total available liquidity at the end of 2015 was $977,000,000 comprised of cash of $319,000,000 and $615,000,000 available under our credit facility. Having further strengthened the balance sheet, we're turning the focus of our capital deployment towards investing behind growth initiatives. With that, I'll turn it back over to Chip to discuss progress against our strategies in 2015 and our priorities for 2016. Thanks, Harmit. Let me take a moment to walk you through several key initiatives we delivered on in 2015 in support of our long term strategic priorities. 2015 was a good year for the Levi's brand, which grew all major categories, men's, women's and kids, tops, bottoms and accessories, strengthening our core and helping evolve the portfolio into more of a lifestyle brand. We introduced fresh innovative trend leading products to expand the consumer appeal of the Levi's brand. The successful global launch of the Levi's women's denim collection in the Q3 of 2015 improved the gender balance of our portfolio. Going into the year, we said this was going to be a top priority and now with half a year of performance under our belt, we're very pleased with the strong consumer response, particularly in respect to the 700 series. Women's grew in all geographies again in the Q4, driving high single digit growth in our women's business for the full year. Levi's brand also introduced the commuter for women and rekindled the 501 family with the 501CT for men and women. Levi's 5.11 slim fit continues to gain share as does the Levi's 5.41 athletic fit, which has become one of our fastest growing products. And the T shirt bars in our retail locations continue to perform well, supporting high single digit growth in tops. In 2015, we also made progress on our key strategic choice to become a leading world class omnichannel retailer, expanding our direct to consumer footprint by 91 stores and growing our e commerce business, while also upgrading our in store and online consumer experience. Direct to consumer was the primary driver of our international growth, which continues to improve the structural economics of our business. The Levi's brand success across segments, channels and geographies reflects the investments we've made to enhance consumer awareness via our global Livin' Levi's campaign in 2015. We made a concerted effort to enhance the effectiveness of our marketing last year from resetting our advertising campaign to reallocating our spending toward more working media, as well as broadening our reach in new channels. In the year to come, we will continue to drive effective marketing in support of the positive momentum we have with consumer response to our products, including new advertising around product launches and with an objective to help combat ongoing consumer traffic softness. As we turn the page to 2016, we expect many of the same headwinds we saw last year. We anticipate another year of strong U. S. Dollar and that the consumer and retail environment will remain challenging for the apparel sector. Nonetheless, we are focused on accelerating our growth this year. We see significant growth potential and plan to prioritize 3 key areas of the business: growing our U. S. Business, growing the Dockers brand and sustaining growth in our direct to consumer and international businesses. I'll touch on each one briefly. 1st, the U. S. Business. With more than half of the company's revenue coming from the U. S, winning here is central to driving our profitable core. We're set up for growth in the Levi's women's denim collection given the strong consumer response to the products and the opportunity to have them on floor for the full year in 2016. Expect us to continue to innovate with more washes and finishes available in upcoming seasons. In Levi's Men's, we believe the trend right products we have planned for the year will continue to demonstrate the strength of our brand in the category. And our signature indenosine products continue to perform exceptionally well with the value seeking consumer. We are increasing our advertising investment in the U. S. In 2016. Part of the incremental investment went into the Super Bowl held last weekend at Levi's Stadium and the entire Super Bowl run up the full week prior in San Francisco. It was incredible to see the Levi's brand exposure during the game, which 1 media analyst valued at $65,000,000 based on television viewership of more than 110,000,000 people in the United States, as well as 100 of millions who watch the game or commented via social media in more than 170 countries around the world. We also launched a full line of Levi's NFL collection products across all 32 NFL teams during the Super Bowl week, including collector's edition Super Bowl 50 items. Overall, we've been very pleased with the marketing ROI of Levi's Stadium, which has generated over 300,000,000,000 impressions through December at a media value of over $400,000,000 I must say the Super Bowl was a proud moment for LS and Co. Another key factor in growing the U. S. In 2016 will be our ability to grow the Dockers business. This year marks the 30th anniversary of the Dockers brand and we're taking the opportunity to bring new consumers into and back to the casual pant category that we created. This year, we will significantly expand Dockers use of stretch fabrics across the line, putting additional emphasis behind our most successful items and generate consumer awareness and demand through additional advertising spend and marketing campaigns. We anticipate an adverse impact in the first half an adverse impact to revenue in the first half of the year as the Dockers product transition takes place, but this will set us up for growth in the second half of the year. Over time, we're migrating our product assortment towards more casual styles and swimmer fits and will simplify the shopping experience by mapping product to key wearing occasions. Executing our strategies in the direct to consumer channel, both at retail and online will continue to be a key component of what will drive our growth in 2016. At retail, we will continue to strategically add to our retail store footprint, while also building our e commerce capabilities and investing in retail enabling technologies like RFID and mobile, all in order to enable seamless, simpler, real time shopping, while delivering an excellent personalized and consistent in store consumer experience across all channels and touch points. While traffic at retail may remain challenging, we will continue to focus on the elements within our control. We recently hired Keri Ask to lead retail globally. She brings with her extensive retail experience and comes on board next week. Direct to consumer growth has been one of the keys to our growth in international markets this year. Our international businesses offer a high potential for growth and have attractive structural economics and continuing to drive profitable growth in these markets is key to our long term strategy. Overall, we're excited about the direction in which we're headed and the opportunities to continue our growth in 2016. Harmit will now outline the financial outlook for 2016. Harmit? Thanks, Shiv. In 2016, we expect to again profitably grow full year revenue on a constant currency basis on the back of the investments we have made and we'll continue to make in our products and the direct to consumer channel. Given ongoing used dollar strength, we are bracing for unfavorable currency translation effects again in 2016. While we will continue to do what we can to mitigate these effects, our current translation estimates are in the range of 300 basis points for revenues and 500 basis points for adjusted EBIT. Excluding currency effects, our expectations for margin and expenses are as follows. We expect gross margin expansion of more than 50 basis points to approximately 51%, driven by the structural cost improvements we made in 2015 as well as growth in our international markets and direct to consumer channels. We expect SG and A as a percentage of revenues will rise, driven by higher advertising and additional direct to consumer investments, but that our base SG and A will decline as a percentage of revenues, reflecting our productivity initiatives. We expect to hold adjusted EBIT margin flat or better with adjusted EBIT growth in dollars on the back of revenue growth and higher gross margins. Adjusted EBIT comparisons will be weaker in the first half and stronger in the second half due to the timing of the advertising increase and as we reset dockers. We anticipate another year of strong free cash flow in 2016 despite higher CapEx. CapEx spending is expected to fall within a range of $120,000,000 to $130,000,000 reflecting investments in e commerce, retail technology and other IT systems to drive productivity as well as more than 70 planned company operated store openings concentrated in Europe and Asia. And we have announced a dividend of $60,000,000 a $10,000,000 increase from 2015, reflecting our confidence in the financial health of the company. From past earnings calls, we know folks are interested in our holiday results. We consider holiday to be the combination of November December results. Broadly, the trends we saw in the Q4 of 2015 continued through the end of December. On a constant currency basis for a holiday period, global direct to consumer revenues were up high single digits and global wholesale revenues were up low single digits. But please keep in mind that these holiday results are comprised of portions of 2 separate fiscal reporting periods and are not necessarily indicative of our Q1 2016 results. With that, we'll take your questions. Thank you. The floor is now open for questions. Your first question comes from Grant Jordan with Wells Fargo. Thanks for taking the questions. I appreciate all the detail. I guess one question, you talked a little bit about your expectations for SG and A this year. You guys took a lot of actions over the past couple of years to get the SG and A rate down. Is it where you'd hoped it would be at this point? Hi, Grant. Thanks for joining the call. When we first commented about the global productivity initiative, at that point, we had said that on an annualized basis, it will result in $175,000,000 to 200,000,000 dollars in savings relative to 2013. And we still expect that it will take through the end of 2016 to see the full benefits as we'd explained. We expect the actions that we've taken have resulted in anywhere between $125,000,000 to $150,000,000 Now the question is how do you see this in our results? So what I would say is that despite the revenue declines on a reported basis, you have seen our gross margins expand and gross margins are influenced by our supply chain efficiency that we did as part of this program. You've seen our organic SG and A rates decline and our adjusted EBIT margins grew on a constant currency basis. So if you take the year, our SG and A as a percentage of revenue on a full year basis is 40.6%, which is nearly flat to a year ago. But that included 120 basis points of unfavorable impact from our higher selling expenses related to e commerce and our retail network. So as you can see, we're clearly seeing the benefits of the productivity initiative. Okay. That's helpful. My only other question was, as you restage the Dockers product, do you anticipate your distribution will be similar, meaning primarily wholesale or you look to try to drive the e commerce through Dockers as well? It's not going to change fundamentally much, Grant. I mean, we have a Dockers e commerce site and transact business on that. Fundamentally, it's about resetting the floors in the biggest wholesale customers as well as online. So I wouldn't expect a major change in terms of distribution or number of doors, at least in the near term. Okay, great. Thank you very much. Your next question is from William Reuter with Bank of America Merrill Lynch. Hi, this is actually Janine on for Bill today. Thanks for taking my questions. So you mentioned you were able to take pricing in key markets that would benefit gross margins. Could you just talk about your flexibility to take more pricing in fiscal year 2016? Sure. Again, we took pricing in response to all the currency pressures we were feeling largely. Currency impacts us in 2 ways. There's a translation impact and then there is a transaction impact, which is really driven by the fact that we source our goods in U. S. Dollars but sell in local currencies in international markets. So we went after mitigating these effects in 2 ways, in actually four ways. We took pricing in key markets like Russia, certain markets in Europe and in Mexico. We continued curtailing costs as part of a cost program. We negotiated a lot better with our vendors and we refined our hedging program. So if you took the impact of cost and pricing that we took, and we took pricing largely in the second half of last year, we probably offset about 50% of the transaction impact. And then if you took the hedging gains as reflected in our results, that offset a bit. The pricing actions we have taken generally have stuck, just again demonstrating 2 things. 1, the strength of our products and the price value equation relative to consumers and also the fact that some of our competitors are taking pricing. As we think about 2016, pricing is obviously important, especially to protect the structural economics of our business. So very relevant, we continue to explore and will take pricing over time. Great. Thanks. And then lastly from me, your inventory levels look good relative to where they were last year. So could you just talk about how you feel about the currency and health of your inventory position? Yes. I mean, generally, inventory in dollar terms is up a percentage, which is consistent with our growth in revenues on a constant currency basis. Feel good about the health of the inventory. Our products generally, especially for example in the U. S, which has been softer, our core products, and that's why we think longer term, we feel good. Now if there is softening in consumer demand as we demonstrated in 2014, we'll aggressively market the product down and ensure that we manage inventory. So we're prepared for the downside if we see 1. Great. Thanks so much. And your next question comes from Hale Holden with Barclays. Hi. Thanks for taking the question. I had 2 kind of quick ones. I was wondering if you could give us sort of an update on how you felt about inventory through the U. S. Wholesale channels sort of currently, given some of the sales trends that some of the department stores have come down with? Hale, thanks for joining. I think generally, we feel good about it. We're working with each customer in a different depending on the inventory that's on the floor and what's in the pipeline to try and work that down. But generally, as you can see from our wholesale results, wholesale results for the quarter globally were up modestly, largely driven by the fact that we have 1 fewer week and that's where wholesale was down. But if you adjust for that, wholesale was up. Got it. And then the second question is in relation to the direct to consumer push on the ecom investments, I was wondering how Amazon as a sales channel kind of fits in with that. You guys have a fairly built out direct offering on Amazon currently. And it was sort of confusing how that competes with your own direct to consumer and own e commerce offerings? So Amazon is a customer of ours. They're really valued. They obviously reach a lot of consumers. But we partner with all of our big wholesale customers who have an e commerce presence. So we're on macys.comandjcpenney.com as well. I like to say I'm kind of agnostic where people buy their Levi's. I want more people with more Levi's in their closet and a lot of people, including myself, shop on Amazon. So it makes total sense for us to be there with the right kind of assortment. And they are an important and very fast growing customer for us right now. I don't know if you'll give me this, but last week, Hanes brand sort of gave Amazon as a 7% to 8% kind of level customer for them. Is that something similar we should think of for you guys or is it smaller? We don't, Hale, comment on the specific mix of our customers. The only thing I would say is building on what Chip mentioned that Amazon is growing and growing at a great pace for us. Sounds good. Thank you for the time. Your next question comes from Karru Martinson with Deutsche Bank. Good afternoon. Just quick housekeeping on the 120, 130, I didn't catch did you mention how many stores you were planning to open? Sorry if I missed that. Yes. Kavya, let me so in response to your specific question, we're planning to open 70 in 2016. In 2015, on a net basis, we opened 91. If you gross it on a net basis, we opened 91. If you gross it up, we opened about 120 and closed about 30. Okay. And the only thing I would say is the 120 or the 90 number included about, I would say, 30 odd stores that we acquired from franchisees. Okay. And does the 70 stores that you're looking at, does that include franchisee acquisitions as well? Or are these going to be your own kind of greenfield sites? Yes. It's a very the franchisee acquisitions are small, largely our own. And just additional color, I would say, in 2015, about 60% of our the net new stores were outlets, about 40% Mainline. Mainline is largely outside the U. S. And as we think about 2016, it's more of a balance between Mainline and outlets. Okay. And just on the advertising spend, given that you did have the Super Bowl in the Q1, I mean, just from a modeling perspective, I mean, should we be expecting sort of a significant increase in that in the Q1 and then we kind of even out or just trying to put the Super Bowl in context of what you needed to spend for that? Yes. I think if you just if you and again, the specific question is about the modeling. I'd say advertising as a percentage of revenue probably increases by about 50 basis points on a full year basis and is largely in the first half. So the first half advertising expense increases about a point and then it obviously is a little lower in the second half resulting in 50 basis points from a full year basis. Okay. And it was very nice to see women's finally kind of growing. When you look at that sell in and the sell through, I mean, what are your plans here to kind of leverage and keep that momentum going for 2016? Are there new introduction, new doors? How should we think of that? Well, we think we continue to have significant upside here. As we've said in the prepared remarks, our women's business was up high single digits through the full year and that was largely driven by double digit growth in the second half of the year post the launch of the women's the new women's collection. And I think as I walk the floors of our some of our biggest wholesale customers, particularly here in the U. S, I think we have still pretty significant opportunities at wholesale. And we're going to continue to innovate on the women's business. We're going to continue to innovate with more washes, more styles, more finishes to try to build on the early success that we have here. We're far from declaring victory. We think we're off to a good start. And now the question is, can we grow from strength to strength? And we have opportunities, I think, both at wholesale and in retail. Thank you very much, guys. Appreciate it. You bet. Thanks, Kyle. Your next question comes from Carla Casella with JPMorgan. Hi. Thank you for the color on holiday. I'd love it if you could give us any more color 1 month beyond that. I know January is a big clearance month. And I'm just curious if you have any comments on what you saw in retail in January? Carla, patience is a good virtue. But the no, we're not going to comment on January, Carla. But we just wanted to address the question around December November. That's what we talked about it. That is great. And we really appreciate that too. And then can you just remind us, when you look at your cost of goods sold, what percentage of that is being made in U. S. Dollars versus other currencies? And if you have any flexibility in moving that? I mean, it's what's made in the U. S. Is a small really a small component is largely made overseas from she's asking about how much are we billed in U. S. Now, which is mostly Yes. So I mean, it's largely our it's mostly $1,000,000,000 Carla. And but we've done a good job as you can see from the gross margin even addressing that. Okay, great. And then just on the retail environment, we've heard Macy's, JCPenney's, Sears are closing some stores. Any thoughts there? You seem to be continuing to grow even though retailers are shutting doors. Are you taking more share with where you are? Or is your space being more productive? How are you continuing to outpace? Yes. I mean, the door closures, store closures by some of our retails, we don't think we'll have a significant impact largely because some of these doors are low performing, low volume stores, and we've done a decent job in the past of remapping sales from some of the retailers through some of the other retailers who still have stores. So again, we're watching this closely, but long term, we don't think it's significant. Okay, great. Thank you. Your next question is from Kevin Coyne with Goldman Sachs. Hi, good afternoon. Thank you for taking my questions. Most have been asked and answered. But I just had a question on the margin guidance. I know that the you've said in the past that the international retail stores come at a higher margin. I was just wondering with the 70 new stores, how much of the margin, let's say, overall growth is coming from them versus perhaps you can give us color on what the women's line margins are? Sure. Let me talk about margins on a broader basis. Our margins for the year are up 250 to 300 basis points if you adjust for currency. Reported margins are up 100 basis points, currency impacted 300. The way I kind of break up the drivers of margin, I'd say about 60%, about 3 5th of that is driven by supply chain efficiencies, which include vendor negotiation and strategies, fabric rationalization, etcetera, etcetera. About a 5th is driven by the structural shift in our business, which is more retail, more international. And about a 5th is made up of price increases, which largely happened in the second half of last year. So Kevin, to be it's difficult to be completely precise to your question about the impact of the 70 stores. I would say that a large majority of the 70 stores are international and our gross margin on our international business is higher than the U. S. Business. But as you can see, from an EBIT perspective, because it takes a while for some of the new stores to ramp up, It's a little difficult to model. But I'd say structurally, you should see, as I said in my prepared remarks, a little bit of annualization of the impact on the supply chain efficiencies and continued growth because of the shift in our business. That's helpful. Thank you very much. Thank you. Just one question on the 70 stores. I think last time you gave us a little more granular color regarding which countries last year's we're in. Can you give us an expectation of where these stores will be? Yes. They're largely overseas internationally in a combination between Asia and Europe. In Europe, for example, we're opening stores in Russia and Germany. In Asia, we're opening stores in China as an example. So and I think the main line in the past has largely been skewed towards outlets. Now we have a better balance. We're also looking at opening a few mainline stores in the U. S. Great. Thank you. Welcome. At this time, I'd like to turn the floor back over to the company for any closing remarks. I just want to thank everyone for joining us on this call today. And we will be back almost before you know it to talk about our Q1 where, Carla, we will be able to answer your questions about January February. So thank you all for dialing in and we'll talk to you again soon. Thank you.