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 two hours after the completion of this call through October 19th, 2015 by calling 800-585-8367 in the United States and Canada at 404-537-3406 for all other locations. Please use conference ID 47005840. This conference call also is being broadcast over the internet, and a replay of the webcast will be accessible for one month on the company's website, levistrauss.com. I'd now like to turn the call over to Chris Ogle, Vice President, Investor Relations, and Assistant Treasurer at Levi Strauss & Co.
Good afternoon, everyone, and welcome to our quarterly conference call. I'm pleased to introduce members of the Levi Strauss & Co. management team. With us today are Chip Bergh, our President and CEO, and Harmit Singh, our Executive Vice President and Chief Financial Officer. Before we begin, I'll remind you of a few items. Our discussion today may include forward-looking statements concerning matters such as our expected financial and operational performance, including our guidance for fiscal 2015, our strategic plans, our expectations for the economy, and currency headwinds to our reported revenues and earnings, anticipated full year A&P spend, future investment in retail and e-commerce operations, reduction of controllable costs, and long-term estimated savings from our global productivity initiative that are based on our current assumptions, expectations, and projections about future events.
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-K, our registration statements, and other filings with the Securities and Exchange Commission. We expressly disclaim any responsibility to update forward-looking statements. Other unknown or unpredictable factors also could 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.
You'll find the appropriate reconciliations at the earnings webcast page in the investor section of our website, as well as in our earnings press release announcing the third quarter 2015 financial results, which was furnished with the SEC today on Form 8-K. Finally, today we filed our quarterly financial report on Form 10-Q with the SEC. You can link to our SEC filings from our website. Now I'll turn the call over to Chip Bergh.
Thanks, Chris, and good afternoon, everyone. Thanks for joining us today. At the start of the year, we noted 2015 would be a year consisting of two distinct halves as we staged key fall product launches and balanced our investments in marketing in the first and second quarters. In the third quarter, we began to see the benefits associated with these efforts. On a constant currency basis, third quarter net revenues grew 7% and Adjusted EBIT increased 23%. We achieved broad-based growth across regions, channels, and brands despite ongoing traffic challenges by delivering an exciting slate of product offerings around the world, including our new women's line, driving double-digit growth in our international regions, growing and investing in our global direct-to-consumer business, and realizing product cost savings from the execution of the global productivity initiative.
While we expect traffic at our brick and mortar stores to remain sluggish through holiday, we believe the strategies we've put in place will help us achieve our goal of growing currency neutral revenue and Adjusted EBIT this year as well as in the years to come. I'll discuss the execution of our key strategies after Harmit walks you through the financial details for the quarter. Harmit?
Thanks, Chip. Welcome to everyone joining our call. My comments today will reference third quarter comparisons on a year-over-year basis in US dollars, unless I indicate otherwise. Net revenues of $1.1 billion declined 1% on a reported basis but grew 7% excluding unfavorable currency translation effects. Wholesale revenue grew 7% on a constant currency basis. The majority of the growth was in the United States and reflected setting flows for our Levi's women's and men's product initiatives. Direct-to-consumer revenues grew 8% on a constant currency basis, primarily driven by the ongoing expansion of our retail network internationally and the introduction of our new Levi's women's offering. Gross profit for the quarter grew 2% to $573 million on a reported basis. Reported gross margin grew to 50.2%. Excluding unfavorable currency effects, gross margin expanded more than 200 basis points.
The improvement primarily reflected lower negotiated sourcing costs and the savings from streamlining our supply chain. We also benefited again from growth in our higher margin international retail businesses and from price increases we took in key markets to help offset the currency effects. Third quarter SG&A expense of $455 million was flat on a reported basis but grew 30 million excluding favorable currency effects. The majority of this increase comprised 150 basis points of our constant currency SG&A rate and related to direct-to-consumer investments including the addition of about 80 brick-and-mortar stores on a net basis since a year ago, as well as spending towards growing our e-commerce business. As a percentage of revenues, constant currency SG&A remained flat at 40%. Adjusted EBIT of $128 million grew $9 million from the prior year on a reported basis and grew $24 million without unfavorable currency effects.
As a percentage of net revenues, Adjusted EBIT improved to 11% as compared to 10% last year, as our improved gross margin more than offset our higher direct-to-consumer channel investments. Third quarter net income of $58 million was up from $51 million last year. A higher Adjusted EBIT was complemented by lower interest expense reflecting our refinancing activities of the last year. Our consolidated tax rate increased compared to last year as a higher proportion of our income was derived from the U.S., which has a higher tax rate. Now I'll share more detail on the third quarter results of our three regions. Net revenues in the Americas grew 5% in constant currency and 2% on a reported basis. The growth reflected higher wholesale revenues, including the introduction of the Levi's women's denim collection. New product introduction in Levi's and Dockers men's also contributed to growth.
Direct-to-consumer in the region was down slightly as traffic continued to be challenging. Conversion remained strong, but the environment was highly promotional. Adjusted EBIT for the Americas grew 18% on a reported basis, reflecting a higher gross margin driven by supply chain savings. In Europe, net revenues grew 12% without the impact of currency, but fell 10% on a reported basis as the stronger dollar continues to significantly impact our results in the region. On a constant currency basis, revenue growth was again driven by strong retail performance as the introduction of our new Levi's women's offering was well received. Growth was strongest in the U.K. and Russia. Adjusted EBIT in Europe grew 2% inclusive of the negative impact of currency, but grew 32% on a constant currency basis, reflecting the higher net revenues and improved gross margin.
In Asia, net revenues were up 9% without the effect of currencies, but flat on a reported basis. The environment remains promotional, with revenue growth coming from our direct-to-consumer and franchise network. Growth was strongest in India and China. Adjusted EBIT in Asia grew $8 million, reflecting the higher net revenues and an improved gross margin. Year to date, constant currency net revenues grew 2%, driven by the third quarter product introduction and continued strong direct-to-consumer performance. Gross margin at 50.2% was 60 basis points ahead of last year despite currency pressures. Adjusted EBIT, however, declined 5% on a constant currency basis, primarily reflecting investments in e-commerce and new stores and increased advertising and promotion spending in the first half of 2015. Turning to the balance sheet and cash flows.
Compared to a year ago, inventory dollars declined due to foreign currency translation and lower average costs, while units increased modestly, reflecting our new product initiatives for fall. Free cash flow for the first nine months of 2015 was zero, as a $29 million increase in cash flow from operations was offset by higher capital expenditure and an increase in our dividend payment. Cash from operations in 2015 includes $25 million we paid to refinance our debt in the second quarter as compared to $8 million last year when we redeemed the EUR bonds. Overall, liquidity remains strong. Total available liquidity at quarter end was $822 million, comprised of cash of $273 million and $549 million available under our credit facility. Net debt of $924 million was flat to year-end, and our leverage declined to 2.2 compared to 2.6 a year ago.
As we move into the fourth quarter, we remain confident about the full-year currency neutral objectives we established at the beginning of 2015. Specifically, revenue and Adjusted EBIT growth, gross margin of 50% or better, and advertising and promotion expenses in the range of last year's 6% of revenue. We also plan to end fiscal 2015 with nearly 100 additional company-operated stores, including new brick-and-mortar locations, as well as stores we acquired from former franchisee partners. However, given favorability in FX and lower spending in non-retail categories, we're lowering our outlook for capital expenditures. We now believe CapEx for the full year will be within the range of $100 million-$110 million. With that, I'll turn it back over to Chip.
Thanks, Harmit. We knew going into this year that delivering strong second half results would be critical to achieving our 2015 growth objective. We made progress toward this goal in the third quarter. Product has been a major focus this year, and our fall launches will be especially important performance drivers for 2015 and next year. Our key initiative for the year is the global launch of the new Levi's women's denim collection. While it's still early days, we are encouraged by the initial consumer response to the product. The new fits, styles, and marketing are driving strong sales in our retail network. In August, the first full month the product was in our global store fleet, direct-to-consumer revenues from sales of women's bottoms grew double digits. At wholesale, initial sell-in has been strong during the transition.
We believe the building momentum of this key initiative will better position us for growth in women's going forward. We also added newness to our men's assortment with the introduction of the Levi's 514 Motion with stretch, and added new washes and finishes for the Levi's 501 CT we launched earlier this year. Our focus on styles such as the Levi's 511 Slim Fit and the Levi's 541 Athletic Fit continued to drive results in the third quarter. Dockers introduced new men's product in the quarter with an emphasis on stretch as well. Our global direct-to-consumer business achieved strong growth again this quarter, up 8% in constant currency, despite well-publicized traffic pressures and the very promotional environment globally. While the majority of growth reflects expansion of our store network, we also grew revenues by improving conversion and units per transaction.
We accomplished this through better in-store service and expanded product offering. For example, tops were up, driven by the graphic tees at our T-shirt bars. We continue to invest in key omni-channel capabilities in order to provide an improved consumer experience. In summary, we're pleased with the progress we've made in executing our strategic business plans. Heading into the fourth quarter, we are cautiously optimistic given the momentum we are building. However, we expect that soft traffic at retail and a broadly promotional environment will likely make for a challenging holiday period. Additionally, as a reminder, our fourth quarter this year will have one fewer week than in 2014. We anticipate that the lost week will constitute approximately two points of fourth quarter revenues. Nonetheless, we believe our growth strategies will continue to drive the top and bottom line for 2015 and beyond.
With that, we can open the line operator to take questions.
Thank you. The floor is now open for your questions. If you have a question, please press star, then the number one on your telephone keypad. If at any point your question has been answered, you can remove yourself from the queue by pressing the pound sign. Because of difficulty hearing questions asked on a speakerphone or headset, we ask that you please use your handset. Your first question will come from the line of William Reuter with Bank of America.
Good afternoon, guys.
Hey, Bill.
Hey, Bill.
I was wondering if you could talk a little bit about the women's launch and either how much this contributed to the 5% constant currency growth in the U.S., or if there's any other way that you might be able to quantify the impact to the quarter.
Well, as we said in the prepared remarks, in the Americas, the results were largely driven by the sell-in effect of women's into department stores as we basically filled the pipeline. I'm not sure if I can break down, I'm trying to do the math in my head right now, break down what percent of the 5% that represented, but it was a pretty good chunk. Then in our own stores, as we said in the prepared remarks, we did set the floors late July and early August globally, and we're already seeing a double-digit uplift on a sellout basis of our women's business versus a year ago. That obviously also played a part in our results for the quarter.
Okay. That's helpful. On your last quarterly call, you guys had been talking as well about challenging traffic. You also highlighted tourist locations last quarter. I'm curious whether you guys saw a noticeable change in trend, whether things had actually gotten worse, or whether sequentially from the second to third quarter, they were pretty similar.
Bill, quarter three is the quarter, at least in the U.S., where the inflow of tourist traffic is higher. The trends were actually worsened relative to what we saw coming into the quarter in terms of traffic between tourist-oriented stores and non-tourist-oriented stores. As I've mentioned in the prepared remarks, our direct-to-consumer business in the U.S. was actually down year-over-year. Going back to the earlier question you asked, and Chip referenced, most of our growth in the U.S. in quarter three largely was driven by wholesale.
Okay. Then just.
Bill, one other thing that I would point out. Most of our stores, about half to two-thirds of our stores, are located in heavy tourist population locations, metro New York, Florida. We are very susceptible to swings in tourism because of the amount of our volume that's concentrated in those locations. We did see an acceleration or a widening of the gap between tourist areas and non-tourist areas, in part because we're so exposed to it.
Okay. Then, I guess, just lastly from me, you guys talked about price increases, and it seems like these were definitely in the U.S. They may have been elsewhere as well, which I'm not sure about, but I guess can you just comment on what % of your products you guys increased prices and what types of price increases you saw? That's all for me. Thanks.
I won't get into specific on what products, et cetera, Bill, I'd say we took a little bit of pricing in the U.S. prior to the currency impact, which is normal course of business. It was in some of the products that are doing relatively well with the end consumer. Price increases, specifically, that I referred to were increases that were taken in response to the appreciation of the U.S. dollar against some currencies, largely in Europe. Markets like Russia, but some Western economies in Europe and in markets like Mexico and Latin America. You could see the impact the strong dollar is having on our reported results. We are trying to offset that to maintain the structural economics of the business through pricing, cost curtailment, negotiation with our vendors.
Broadly speaking, I'd say pricing and cost curtailment is probably mitigating about 50% of currency impact globally. We are looking at currencies on a daily basis because the currencies in the emerging markets, for example, in quarter three depreciated a lot more than one had anticipated.
Great. That's all for me. Thank you.
Thanks.
Your next question will come from the line of Carla Casella with JPMorgan.
Hi. My question is around the cadence of the quarter, both retail as well as wholesale, because from what we're hearing from a lot of retailers, it sounds like there's been mixed comments about back to school. Just wondering what you've seen there.
Well, you got to remember, the calendar is a little bit different this year than last year, right, Carla? You had Labor Day one week later. We definitely saw a continuation. I think it happened last year, where back to school seems to no longer be a single event or is concentrated in a single or a couple of week period of time. It seems to be pretty extended. We saw the quarter heavily influenced by the sell-in of the women's product launch, which happened fundamentally in July and early August. That kind of reflects the way we had planned out the quarter.
Okay. If you looked at same store sales, how much of that would have been driven by the load-in for the women's versus sell-through?
Carla, it's important to remember that the full launch of the women's product really started getting effectuated in the month of August, which is the last month of the quarter. That's why, I think in the prepared remarks, Chip referred to August, our sell-through across our retail stores being up double digits. It's early days yet, in terms of reflecting how the women's product is doing, but the early signs are encouraging. The other point to note, our international businesses had a fairly good quarter. Again, it's a continuing trend that you've seen. As we put the teams on the ground over the last 12 to 18 months, our international businesses are doing well. Europe, for example, had another real good quarter despite the currency on a constant currency basis.
As well as structurally, because they're more retail-oriented, these businesses outside the U.S., our margins are being helped by protracted growth in these businesses. That's the other thing to consider as you think about the quarter.
Yeah, I was actually going to ask about just the European. That was such a strong number, the 11.5%. Can you give us a sense for how much of that was from new stores versus underlying or kind of organic or same store sales?
Yeah. Again, at the outset, we don't disclose same store sales, I'd say it's a very good balance. Comp sales in Europe were up, we've had expansion in our retail network. In Europe, as against the U.S., the business is more 50/50 between wholesale and retail.
Okay.
The two countries to call out. Russia has been on a steady trajectory of growth for us, the U.K. is having another good year.
I think it's just worth pointing out that one of the reasons we're seeing the results that we're seeing, and it's been a continuation over a couple of quarters now in Europe, is we're just executing really well in Europe. We saw really balanced growth between retail and wholesale, and the teams just, despite all of the external and environmental challenges in Europe, they just keep delivering.
Yeah. At what point do you think you might disclose the same store sales? How big does retail need to be?
Stay tuned. As retail takes off and retail becomes a bigger piece of our business, we will start articulating KPIs that help everybody understand the strength of our direct-to-consumer business.
Okay, great. Thanks a lot.
Welcome.
Your next question will come from the line of Grant Jordan with Wells Fargo.
Hey, good afternoon. Thanks for taking the questions. It looks like there's a pretty big increase in the number of retail stores. I think you said most of those were international. Can you provide if there's a specific area you're targeting as you open those stores, and how that might look over the next couple of years?
Yeah. Grant, in terms of the number of stores, I think if you compare versus a year ago, we're probably on a net basis up 80 stores. The 80 stores actually do include about a fourth of the 80 stores are coming from franchisee buyback. As we grow our retail network across the world and consolidate some of the franchise stores, that does get incorporated into these numbers.
Okay.
The rest of the stores primarily have been opened in Europe and Asia. Asia, for example, predominantly China and India are where the areas of focus are. Russia and Europe, for example, we continue to open stores, et cetera. We are focused on growing our retail presence across key markets outside the U.S.
On those countries where you do have licensees, are there agreements in place where you can buy those licensees out, or is it more just a negotiation?
Specifically, if you're asking about licensees, the license agreements like with some of our competitors, have a finite term, largely.
Okay.
At the end of the finite term, we can decide whether we need to take back those licenses. If you have specific questions about franchise stores, the same stands true. It's truly based on the term, the performance of the franchisee stores, and the franchisee in general.
Okay.
As we organize around some of these markets, taking a holistic view on which stores we should run and operate versus operate to a franchisee partner is an important strategic question that we discuss and align on as part of our strat plan.
Okay, great. That's helpful. Thanks, guys.
Welcome.
Your next question will come from the line of Karu Martinson with Deutsche Bank.
Good afternoon. When you guys talk about sluggish traffic for the fourth quarter, how do you guys square that against most of the forecasts for the holidays, kind of looking for a low to mid-single-digit holiday sales growth?
I think the simple answer is the best way to predict the future is to take a look at the recent past. We've been talking about traffic declines now for probably two years, and I don't see anything that's going to fundamentally reverse the traffic declines that we've been seeing over an extended period of time. It is possible to eke out some sales growth despite declining traffic in our retail stores through a combination of online e-commerce and focusing on the things that are within our direct control, like conversion and units per transaction. I do think it's possible to grow in an environment where traffic is down. We can't use traffic as an excuse not to grow, but we're going to focus on the things that are within our control and expect that, kind of plan for the worst and hope for the best.
If traffic reverses and it actually grows, and we continue to focus on conversion and everything, that'll be a great thing. I would say a realistic way to look at what to expect in the coming future is what we've been seeing here recently.
Okay. When we look at the lower negotiated sourcing costs, is that a benefit that should continue to build on itself, or how should we think about that going forward?
A couple of things. Let me talk about gross margin in general. Gross margin basically impacted by a couple of things. One is supply chain. I'll come to your specific question in a minute. The second is just the ongoing change in the structure of a business, more retail driving the growth, et cetera, and more international, both of which are higher margin businesses. Product offerings. For example, our women's introduction, the margin on our new women's line is higher than what we had originally. That makes a difference in terms of gross margin. The price increases that we're taking which help offset some of the transaction impacts we're seeing on currency. Going to your specific question on supply chain. The couple of aspects that are helping us drive supply chain efficiencies. One is part of our global productivity initiatives.
We have tried to simplify our fabric platforms, our PC9s, et cetera, as well as the infrastructure that we had. That impact largely will happen or be felt this year and reduce over time. We've also taken some decisions on optimizing our networks. Largely the factories we own. We shut two factories down. Outsourced that to our third-party vendors. That's going to have an impact. That's probably going to be seen more in 2016 and 2017 than you see it today. The third, and more importantly, is better negotiation and sourcing as the business grows. I think that you will see ongoing over time. It's difficult to break it up, but I'd say it's a combination of an impact you see this year, some of which you're going to see on an ongoing basis.
Okay. Just lastly, on Asia, for a long time it was the area we called out for room for improvement, it seems that that business has stabilized and is growing nicely. What's changed on the ground there? Do you feel that those improvements are sustainable?
First of all, I do believe that it's sustainable. Second, we have a team on the ground that now I guess the whole team has been there for about two years. We've got some continuity there. We've got great leadership and we've got a strong strategy. We're committed to Asia. We're investing in the key markets in Asia, the team has really come together, and they're starting to execute. It's the classic recipe for success. Have a good strategy and have good people on the ground to execute and then execute brilliantly, we're seeing the result of that right now.
Thank you very much, guys. Appreciate it.
Your next question will come from the line of Hale Holden with Barclays.
Thanks for taking the call. I had a couple quick ones. You called out declining traffic and higher intensity of promotions a couple times on the call and in various different geographies. I was wondering if you could just rank it or tell us which geography was feeling it the most or that you were most concerned about.
I'd say, traffic wise, because of the tourism impact, the U.S. is leading the geographies from that perspective. Having said that, we've seen traffic declines across the globe, and being offset through increase in traffic on our e-commerce business. Structurally, it's a different business. That hopefully answers your question. Now, we're doing what we can to offset the traffic declines, and we're doing that through a couple of things. One, introducing the right product. For example, the women product line that was introduced will bring in more consumers, as well as new product introduction on the men's side that we've introduced over the last couple of quarters, is helping bring in new consumers. The second is better execution. That is really driven by higher conversion and higher units per transaction.
Both of which are global trends, in terms of better execution that we're seeing across our stores.
The traffic declines, are they even through your own stores, your wholesale partners, and then your outlet stores, or is there a mix between the three that's different?
It's slightly different. I'd say more on our mainline stores, which is really stores that are on high streets and malls, and less in outlet stores because the consumer is value conscious, and that's a global trend.
Okay. Last question is, it's been a while since you've called out Dockers men as an improvement category. I was just wondering, I hadn't been paying attention to some of the trend changes you've made there. Is there anything noticeable that's different or any color you can give us on that?
Yeah, Dockers, as we said at the outset, part of the broad-based every brand grew. Dockers grew in the third quarter, including in our international markets. The big driver was the sell-in of some of the new men's product. Stretch is a big trend. We've talked about it on women's. We've introduced product with stretch on both the men's Levi's bottoms business as well as on the Dockers bottoms business. That product has started to sell really nicely. We're seeing real positive sellout there. I continue to see really strong potential of this brand longer term. We're focused on growing it and we're encouraged by the early results of the selling of this new product.
Great. Thank you for the time. Appreciate it.
Yep. Thanks, Hale.
Your next question will come from the line of Kevin Coyne with Goldman Sachs.
Hi, good afternoon. Thanks for taking the questions.
Hey, Kevin.
Just had a couple. Hi.
Hi.
You called out women's, and it's nice to see the launch going well. I was wondering if you could share with us a few of the attributes as to why you think it's resonating so well. I don't know if it's fashion, fit, or fabric. If you could just maybe expand on why you think perhaps you're taking share in that category.
It's a really good question. I think a big part of the early success that we're seeing, the team really went to school on this, and I've talked about it in the past. We've been talking about the women's relaunch for about a year, I guess.
They were around the world a couple of times, testing and refining the product. The whole trend towards softer, stretchier fabrics, it's built into this line, and into the lineup. The 711 and the 710, which are the skinny and super skinny, with super stretch. We've got up to 90% stretch in some of the items. It's just resonating with women. You add to that denim seems to be on trend. We have covered the base in terms of fashion and style. Add to that, we've got a pretty compelling piece of advertising that seems to be resonating and working around the world. We've launched it on about the same timing everywhere in the world, within a couple of weeks. It's still early days.
I'm far from ready to declare it a big success. We're certainly encouraged with the early response that we've seen. It's exciting standing in store and watching women try it on and seeing their reaction after they've tried on the product. It definitely is working.
That's great to hear. Yeah, it'll be interesting from our end to see if it's ultimately bucking that athleisure trend. We'll stay tuned.
Stay tuned.
Just to touch on the back half of the year. You've given us certainly a type of cautious tone. Would you say it's safe to say that, I know you don't have a dividend policy, certainly we wouldn't expect a dividend the remaining calendar year.
As you rightly said, no dividend policy. Dividends are a decision that the board takes based on the cash flows of the company. Our history has said once a year, other than one year because of tax reasons, we did it in the same calendar year. Just talking a little bit about our thinking about capital. The way we're thinking about capital is, we did increase the amount of capital deployment in the company towards growth initiatives, largely technology, e-commerce, and retail, reduce the pay down of debt. As we think about capital, I think, our first point of call is going to be towards growth ideas that will return incrementally relative to the cost of capital back to the company. Then, pay down on debt, and then based on what's left, having a discussion with the board in terms of returning capital back to the shareholders.
Okay. Thank you for that detail. Just one final housekeeping one. Would you happen to have the latest run rate of rent expense with the store expansion?
No, not off the top of my head, no.
Okay. I'll follow up. Thank you.
Sure. Thank you.
Again, if you'd like to ask a question, press star then one on your telephone keypad. Your next question will come from the line of Todd Harkrider with UBS.
Yes, appreciate it. Congratulations on a good quarter.
Thank you.
With some of the mixed data coming from other apparel firms recently, can you talk about if you think you'll have to give higher markdown money in the fourth quarter? With A&P at 6% for the year, at least guiding towards, that would imply a meaningful decline year-over-year. Is that A&P, is it highly visible at this point? Or if you see increased sluggishness in apparel, you could actually see higher A&P? Thanks.
Yeah. Sorry, can you repeat your first question, Todd?
Markdown money.
Yeah. In terms of markdown money, I think it's difficult to globalize that. We try and be relevant to the market and the consumer dynamics on a market by market basis. We follow a fairly prudent markdown policy, which is seasonals have a different markdown. Core products have a different markdown. I think just reacting to some tourist traffic and the things in those areas, just making sure we are competitively as we price products is important. I think and we've done a decent job so far, so we'll stay true to that cause. In terms of advertising, on a year-to-date basis, I think our advertising spend is probably a little under 6%. It's 5.7%. Quarter three was 6.1%.
We still believe that for the year, we'll end around 6%, which means that quarter four will be slightly north of the 6% to average 6% on a full year basis.
Got you.
That is, as you rightfully point out, below a year ago. We intentionally have talked about this as well, have tried to smooth our A&P spending through the year to even the spending quarter to quarter, more or less. That does imply lower spending in the fourth quarter than a year ago, and that is the way we've planned the year.
Sounds good. On the e-commerce side, can you talk about what you're seeing when it comes to the find in store functionality, if you're seeing people actually use that? I know you're promoting free shipping on all online orders in the U.S. right now. Is that benefiting you right now? Not sure if you actually offered that last year. At minimum, are you seeing it drive new individuals to the website?
I'll answer the second question first on free shipping. We do it off and on, we do it promotionally as a way to drive closure and to drive sales. We may be doing it right now as we speak. It obviously comes at a cost, it's also kind of what you need to be in the game occasionally here in this market, here in the U.S. On the find in store, this is a relatively new feature, which we launched last quarter. We've started to expand it to some of the other markets around the world. We also are one of the first to have a find in store feature with one of our key wholesale partners, we are seeing that consumers are starting to use it. We will continue to build on this functionality.
We don't yet have the ability to find in store and reserve in store. That's something that's coming down the pike soon. We're going to continue to build out our kind of omni-channel capabilities to enhance the overall consumer experience and to drive more revenue. We're making steps. They're steps in the right direction. Pretty pleased with the progress that we've made, we still have a ways to go.
Yeah, appreciate it. Good luck with the holiday.
Thanks.
At this time, I'd like to turn the floor back over to the company for any closing remarks.
I want to thank everyone for calling in. Our next call, believe it or not, won't be until next year in February, after Super Bowl 50 at Levi's Stadium and after the holidays. I want to wish everyone a happy holiday, and we'll talk to you again in the new calendar year.
Thank you. This concludes today's conference call. Please disconnect your lines at this time.